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Regulation and Compliance > Federal Regulation > DOL

The ABCs of the DOL fiduciary rule

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The Department of Labor released its final rule to amend the definition of fiduciary under the Employee Retirement Income Security Act (ERISA).

The DOL first shared copies of the new rule with the Federal Register. 

According to Labor Secretary Tom Perez, some 300,000 comments came in on the proposed rule, and many adjustments were made to the final rule that reflect this input.

As advisors and broker-dealers pore over the rule, they will closely review the many definitions included in it.

Here are the preliminary details on some terminology it includes, based on industry research, reports and analysis compiled over the past 12 months:


The Department of Labor’s fiduciary standard states that a person is deemed to be providing investment advice if that person:

(1) Provides recommendations on the purchase, holding, disposing or exchange of securities or property, including those being affected by a rollover of or distribution from a retirement plan or IRA.

(2) Makes investment management recommendations.

(3) Appraises investment.

(4) Makes recommendations of individuals who provide advice for a fee.


Under the new rules, the Best Interest Contract Exemption, would permit some variable compensation for advisors and financial institutions in certain circumstances, subject to compliance with detailed conditions, according to some industry analysis. This compensation, though, requires that parties enter into a contract, which would be be enforced by the states. 

BICE permits advisors, financial institutions and their affiliates and related entities to receive compensation for advice related to “assets” given to “retirement investors.”

“Best interest” is defined as investment advice when the advisor or financial institution is acting with “the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person would exercise.”

Advice is “based on the investment objectives, risk tolerance, financial circumstances and needs of the retirement investor,” given “without regard to the financial or other interests of” the advisor, financial institution, affiliate, related entity “or other party.”

BICE Disclosures

The Labor Department has estimated the costs associated with the various paperwork requirements of the new and updated Best Interest Contract Exemptions, which require investor disclosures. Of greatest interest here is the cost of the BICE, according to the Financial Services Institute.

The Labor Department believes that the BICE will require 86 million disclosures to be distributed in the first year, and 66.4 million annually in subsequent years. It is unclear where these numbers come from, the FSI says.

Estimates for the costs associated with these disclosures will be about $77.4 million in the first year and $29.2 million in subsequent years, according to the DOL.


There are a number of carve-outs, or counterparty exclusions, from the DOL’s definition of fiduciary advice, including certain principal sales transactions and swaps, activities of plan sponsor employees, certain information provided by platform providers, and selection and monitoring assistance (that does not include advice or recommendations).

Two of particular note involve educational information and information provided to large plan fiduciaries. The education exclusion specifically applies to plans, participants and IRA owners (not just participants), and specifically includes information relating to retirement income. However, the exclusion does not permit the education to reference specific investment products, even those available on the plan menu.

With regard to large plan fiduciaries, it is generally understood that if the advisor is offering products to the fiduciary of a plan with more than 100 participants, she will not be providing fiduciary advice if there is a written acknowledgement from the fiduciary that she understands that advisor is not operating as a fiduciary, and a number of fee and other disclosures have been provided.

If the advisor is offering products to the fiduciary of a plan with more than $100 million in assets, then this disclosure and acknowledgment do not have to be in writing.

In general, those parties engaged in simple “order-taking” to buy or sell  investments without providing any recommendations are not considered to be involved in the provision of investment advice and hence do not have any fiduciary responsibility to the plan sponsor.


The Department of Labor, a cabinet-level department, maintains that it has the authority to protect America’s tax-preferred retirement savings under ERISA, enacted in 1974. It says it recognizes “the importance of consumer protections for a basic retirement nest egg and the significant tax incentives provided to encourage Americans to save for retirement.”

The DOL was formed in 1903 and is currently led by Thomas Perez, who became the secretary on July 23, 2013. The department is responsible for administering and enforcing more than180 federal laws and thousands of federal regulations that affect about 125 million workers in the United States.

(AP Photo/Molly Riley)


The Employee Retirement Income Security Act of 1974, a federal law, established minimum standards for pension plans and includes extensive rules on the tax effects of transactions associated with employee benefit plans.

ERISA aims to protect employee interests by requiring disclosures to beneficiaries, setting up standards of conduct for plan fiduciaries and providing employees with remedies and access to federal courts.


The work of those who appraise employee stock ownership plans are excluded from the definition of fiduciary investment advice.

The new rule strives to clarify that such appraisals do not constitute retirement investment advice subject to a fiduciary standard. Earlier this year, the DOL said it may put forth a separate regulatory proposal to clarify the applicable law for ESOP appraisals.


Under the DOL’s new rule, any individual receiving compensation for providing advice that is individualized or specifically directed to a particular plan sponsor, plan participant or IRA owner for consideration in making a retirement investment decision will now be a fiduciary.

Such decisions can include, but are not limited to, what assets to purchase or sell and whether to roll over from an employer-based plan to an IRA. The fiduciary can be a broker, registered investment advisor, insurance agent or other type of advisor.

As a fiduciary, 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 a new exemption intended to assure that the customer is adequately protected.


Under the DOL’s proposed standard, any transaction in which a financial advisor, or his firm, has a conflict of interest (e.g.., would receive more compensation if the investor were to make the transaction) would be labeled a Prohibited Transaction (or PT).

In order to go forward with such a transaction, an advisor would be required to procure a Prohibited Transaction Exemption (PTE), the most significant of which under the proposed rules is the Best Interest Contract Exemption (BICE).

Essentially, this would require the advisor and the client to enter into a contract where the advisor promises to act in the undefined “best interest” of the client (including vague provisions like not receiving “excessive” compensation), according to the Financial Services Institute.

RIA (Not Registered Investment Advisor)

Regulatory Impact Analysis is research, which the DOL released along with its fiduciary proposal. The analysis estimates that families with IRAs would save more than $40 billion over 10 years when the rule and certain exemptions are fully in place.

However, FSI argues that independent broker-dealers alone will have to spend $3.9 billion to make their activities and operations compliant with the new rule. 

Check out more of our DOL fiduciary rule coverage here:

DOL rule: Expect changes to products, distribution & compensation

FIA sales spotlighted in DOL rule

New DOL rule will force insurers to adapt

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