The DOL Notice of proposed new "fiduciary" rules for firms or individuals receiving compensation for providing "advice"

Tip of the Day

By Stephanie Reagan

Today the DOL Issued a Notice of Proposed Rulemaking (NPRM) To Address Conflicts of Interest in Retirement Advice

The NPRM proposal updates the Retirement ERISA protections by:

  • Redefining Fiduciaries to be:

 "... any individual receiving compensation for providing advice that is individualized or specifically directed to a particular plan sponsor (e.g., an employer with a retirement plan), plan participant or IRA owner for consideration in making a retirement investment decision is a fiduciary. Such decisions can include, but are not limited to, what assets to purchase or sell and whether to rollover from an employer-based plan to an IRA. The fiduciary can be a broker, registered investment adviser, insurance agent, or other type of adviser (together referred to as “advisers” here)."

If advisor is a fiduciary as described above, he or she must provide impartial advice in their client's best interest unless they qualify for an exemption.

  • Preserving Access to Retirement Education

The DOL carved out education from the definition of retirement investment advice.

  • Distinguishing "Order-Taking" From Asking for Advice

If a broker receives an order from customer on exactly what to buy or sell, that activity doesn't constitute investment advice.

  • The Proposed NPRM makes IRA "Advice" Qualify Under the Fiduciary Standards of Care

Clients receiving IRA investment advice from brokers were rarely protected under the current ERISA and Internal Revenue Code rules. Now, under the proposed NPRM) the IRA advisors will be providing fiduciary investment advice.

  • Complying with the Proposed NPRM

    • Fiduciaries providing investment advice are required to act impartially and provide advice that is in the client's best interest. New PTEs will be created that are broad, principled-based and adoptable to changing business practices. Common forms of compensation like revenue-sharing and commissions will be permitted under the PTEs.

    • The advisors providing retirement investment advice must enter into a contract with their clients that:

      • Commits the firm and advisor to providing advice in the client's best interest

      • Warrants that the firm has adopted policies and procedures designed to mitigate conflicts of interest

      • Clearly and prominently disclose any conflicts of interest like hidden fees, backdoor payments

      • The proposal asks for comments on exemptions that would allow firms to accept payments when recommending the lowest-fee products.

  • Strengthening Enforcement

    • DOL currently has the right to bring enforcement actions against fiduciary advisors who do not operate in the client's best interest.

    • "Best Interest Contract Exemption" allows customers to hold fiduciary advisors accountable for providing advice in their best interest under contract breaches.

    • The IRS can impose excise taxes on transactions of conflicted advice.

  • Process Going Forward

    DOL invites comments during a 75-day period. After review of comments, the DOL will issue a final rule but it will not go into effect immediately.


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