The Department of Labor said Monday that it will propose a new fiduciary standard based on a temporary policy put in place after the 5th Circuit Court of Appeals vacated the DOL’s previous rule in March 2018, and it will now allow investment advice fiduciaries to receive certain forms of compensation once prohibited.
The proposal would also 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.
The DOL noted that since the 5th Circuit’s ruling, the Securities and Exchange Commission (SEC) has issued a package of advice standards, and the DOL’s proposed exemptions align with those and other regulators.
Developed by the Employee Benefits Security Administration (EBSA), it comes on the eve of the SEC’s implementation of Regulation Best Interest (Reg BI), and just days after the Second Circuit Court of Appeals rejected a challenge to the SEC’s rule, which covers broker-dealers.
The proposed exemption also includes the DOL’s views on when rollover advice could be considered fiduciary advice under the ERISA and the Internal Revenue Code, and is based on its “Five-Part Test for Status as an Investment Advice Fiduciary.”
“Today’s proposed exemption would give Americans more choices for investment advice arrangements, while protecting the retirement savings of American workers,” Secretary of Labor Eugene Scalia said in a statement. “The exemption would add to the tools individuals need to make the right decisions for their financial future.”
Previous versions
The fiduciary rule, once officially known as the Department of Labor’s Conflict of Interest Rule, had occupied industry advocates and opponents since its reintroduction in April 2016 under then EBSA head Phyllis Borzi.
Two years later, the Fifth Circuit struck it down, citing arguments made by plaintiffs’ groups—including the U.S. Chamber of Commerce, Financial Services Institute, and the Financial Services Roundtable, among others.
Finding at the time that the “Rule fundamentally transforms over fifty years of settled and hitherto legal practices …” the court called it a “regulatory abuse of power” that stemmed from a discovery the DOL supposedly made in “a long-extant statute” that implied or indicated “an unheralded power to regulate a significant portion of the American economy.”
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.
