The DOL Fiduciary Rule
The Department of Labor (DOL) has significantly revised the definition of fiduciary investment advice under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code, broadening the scope of who is deemed a fiduciary with regard to ERISA-covered plans, individual retirement accounts (IRAs), and other tax-favored accounts subject to section 4975 of the Code. Previously, fiduciary status was attached to those offering personalized, regular investment advice, intended as a primary basis for investment decisions. The new rule expands this to include any personalized advice or recommendation concerning a retirement plan, IRA, or other applicable account, increasing the regulatory responsibilities for more financial professionals.
The DOL previously sought to change the definition of fiduciary investment advice in 2016, but that rule was vacated by the federal courts in 2018. Much like this new rule, the 2016 version imposed fiduciary status on nearly all financial professionals who work with retirement savers. However, the DOL has asserted that the 2024 rule has been designed to avoid meeting the same fate as its predecessor. For example, the new version does not require financial professionals and financial institutions to enter into best interest contracts with their clients. It remains to be seen if the 2024 rule will withstand judicial scrutiny.
The rule's impact varies between institutional and retail investors. Institutional environments might manage the risk of being a fiduciary more flexibly due to their sophisticated nature and use of independent advisors. However, retail investors face stricter scrutiny. The rule also continues to tread a fine line on investment education, particularly around rollovers, where educational content can easily veer into advice.
The new rules are set to take effect in September 2024, though certain requirements will not apply until September 2025. With this in mind, financial professionals should be preparing now to adapt their business practices and update their policies and procedures as necessary to ensure compliance.
This information comes from Jason Berkowitz, Chief Legal & Regulatory Affairs Officer, Insured Retirement Institute (“IRI”), David Kaleda, Principal, Groom Law Group and Jane Riley, Chief Compliance Officer, The Leaders Group who presented in our NSCP Currents Live Webinar “The DOL Fiduciary Rule” on June 25, 2024.
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