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 It was withdrawn under intense pressure from the industry as well as members of Congress, especially Rep.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.