On Tuesday afternoon, the U.S. Department of Labor today announced a new exemption for investment advice fiduciaries. The announcement of the regulation was in line with the SEC’s Regulation Best Interest (Reg BI) adopted in June, and an attempt at harmonization among various agencies.
According to the DOL, the exemption offers a new prohibited transaction class exemption for investment advice fiduciaries and is based on an existing temporary policy adopted after the 5th Circuit Court of Appeals vacated the Department’s 2016 fiduciary rule package.
It would allow investment advice fiduciaries to give more choices for retirement using Impartial Conduct Standards. Impartial Conduct Standards are a best interest standard; a reasonable compensation standard; and a requirement to make no materially misleading statements.
5th Circuit Ruling
Since the 5th Circuit’s ruling in 2018, the Securities and Exchange Commission (SEC) has issued a package of advice standards,” the DOL notes. The standards in the Department’s exemption align with standards of other regulators, including the SEC.
SEE THE FINAL RULE HERE
“Today’s action provides clear regulatory standards that ensure American workers and retirees have access to high-quality, affordable investment advice,” U.S. Secretary of Labor Eugene Scalia said in a statement. “In tandem with action taken last year by the Securities and Exchange Commission, this exemption gives Americans a greater opportunity to invest in the American economy with the assistance of professionals acting in their best interest.”
Not all were happy with the outcome, however.
“This weak rule will hurt workers, retirees, and families across the country by letting unscrupulous financial advisors put their own interests ahead of their clients,” Senator Patty Murray, D-Wash., said in a statement. “People are looking for reliable help as they try to navigate the painful economic fallout of this pandemic—but this rule will make that unbiased help even harder to find. We are going to do everything we can to work with the incoming Biden Administration to reverse the damage of President Trump’s backwards policies and to strengthen the retirement security of people across the country as they work to weather this crisis.”
The financial services industry was predictably pleased.
“The rule contains several positive changes that can help to ensure consumers will continue to access the financial products and services they need to achieve retirement goals,” Jason Berkowitz, Chief Legal and Regulatory Affairs Officer with advocacy group the Insured Retirement Institute. “We appreciate that the final exemption in the rule aligns with a best interest standard similar to the U.S. Securities and Exchange Commission’s Regulation Best Interest and the National Association of Insurance Commissioner’s model best interest regulation that states have begun to adopt.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
