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Retirement Planning > Saving for Retirement

What does it mean to be a fiduciary?

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The final DOL fiduciary rule ends a process that began with publication of a proposed rule in 2010. It was withdrawn under intense pressure from the industry as well as members of Congress, especially Rep. Barney Frank, D-Mass., who had been a member of the House Democratic leadership for many years, had served as chairman of the key oversight committee, the House Financial Services Committee for four years, and was ranking minority member of the committee at the time. Frank has since retired, and the rule has been entirely rewritten. Thomas Perez took over as Labor secretary in 2013, and became the face of the renewed initiative starting last year to push the rule through.

The rule replaces the standard governing sale of investments into retirement accounts that had existed since the Employee Retirement Security Act (ERISA) was enacted in 1974. The Obama administration, now led by Perez and President Obama, argues that the new standard is needed because “there has been a dramatic shift” from employer-sponsored defined benefit plans to self-directed IRAs and 401(k)s. “These changes have increased the need for good retirement advice, yet until today the ERISA rules governing retirement investment advice had not been meaningfully updated since 1975,” Perez said in a briefing for reporters Tuesday.

“The rule requires more retirement investment advisors to put their client’s best interest first by expanding the types of retirement advice covered by fiduciary protections,” officials said.

“Today large loopholes in the definition of retirement investment advice expose many middle-class families, and especially IRA owners, to advice that may not be in their best interest,” Perez said.

He added that under the rule, any individual receiving compensation for making investment recommendations that are individualized or specifically directed to a particular plan sponsor running a retirement plan (e.g., an employer with a retirement plan), plan participant, or IRA owner is a fiduciary.

“Being a fiduciary means that the advisor must provide impartial advice in their client’s best interest and cannot accept any payments creating conflicts of interest unless they qualify for an exemption intended to assure that the customer’s interests are protected,” Perez said.

This change expands protections to IRA owners and people rolling over their savings into an IRA from a 401(k), who now must receive investment advice in their best interest, he noted.

The insurance industry was virtually unanimous in opposition to the new rule, which also ran into strong opposition from such mutual fund powerhouses as Fidelity, although groups representing investment advisors in general supported it.


Congressional hearings have been held against it, and one bill seeking to delay or kill it has passed the House. Efforts were also made over the last several years to insert language delaying or killing the effort into must-do budget bills, as Perez acknowledged in his comments Tuesday.

However, Perez cited the support of President Obama, and opposition from congressional Democrats, citing Sen. Harry Reid, D-Nev., minority leader, and Rep. Nancy Pelosi, D-Calif., House minority leader, for leading the effort to stop Republicans from inserting language in other bills that would delay or kill the initiative.

One tack by opponents was to seek to have the Securities and Exchange Commission take the lead on a new rule. The SEC has been wrestling with trying to craft a uniform fiduciary standard for a decade, and was given specific permission to do so in the Dodd-Frank Act. However, that effort has failed. Opponents of the DOL proposal sought to push the SEC to the forefront, but that failed for two reasons: There is no consensus on the SEC rule and the fact that the two agencies oversee administration of two different enabling laws.

MetLife comments

One example of industry opposition was contained in a comment letter sent to the DOL last August by MetLife. In its letter, MetLife said that, “Unless it is changed substantially, the Department’s proposal will convert virtually every writing and every utterance made by an insurer or its distributors to small plans, plan participants, beneficiaries and IRA owners into a fiduciary communication.” Moreover, MetLife said, the proposal would then categorize the marketing and sale of proprietary guaranteed lifetime income products as activity that is prohibited in the absence of exemptive relief.

MetLife also argued that the proposed rule “proposes to apply a death blow” to the sale of annuity products and their guarantees of lifetime income to individual plan participants and IRA owners by exempting these sales from prohibited transaction status only under conditions that set an unachievable standard. 

MetLife said that, “The proposed BIC exemption — the sole exemption available to cover the sale of individual variable annuity products — compels selling firms and their representatives to expose themselves to class action litigation risk by signing on to standards of conduct and warranties that are both so onerous and so amorphous as to defy even the most ardent compliance efforts.”

The industry response

It is unclear how the industry and mutual fund and other opponents will react to the final rule. The American Council of Life Insurers and other trade groups, as well as individual insurers and mutual funds, have already engaged law firms and are considering legal action. Indeed, the ACLI has even drafted a “30-Day Plan for Fiduciary Rule Release” that calls for ultimate efforts to go to court to seek a delay, pending legal action aimed at stopping the rule, according to the Wall Street Journal.

As the rule was first released at 6 a.m. this morning, industry reaction is not yet available.


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