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DOL Releases Fiduciary Rule Guidance

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What You Need to Know

  • The department has released FAQs for investment professionals and investors.
  • “The DOL has done an excellent job of giving real substance to requirements to act in the customer’s best interest,” consumer advocate Barbara Roper says.
  • Labor said that it is continuing to review “issues of fact, law and policy related to the exemption.”

The Labor Department issued guidance Tuesday on its fiduciary investment advice for retirement investors, employee benefit plans and investment advice providers.

The guidance, released by Labor’s Employee Benefits Security Administration, relates to the department’s “Improving Investment Advice for Workers & Retirees” exemption and follows its Feb. 12 announcement that the Trump-era exemption would go into effect as scheduled on Feb. 16.

Ali Khawar, acting assistant secretary of Labor for EBSA, said Tuesday in a statement that the two-pronged guidance “provides helpful information regarding the importance of selecting an investment advice provider who is a fiduciary and the protections that are provided to retirement investors under the ‘Improving Investment Advice for Workers & Retirees’ exemption.”

The compliance-focused FAQ “provide assistance to financial institutions and investment professionals as they ramp up compliance with the exemption,” Khawar said.

Labor “made clear when it allowed the exemption to take effect as scheduled that additional guidance was on the way, so we were expecting this,” Barbara Roper, director of investor protection for the Consumer Federation of America, told ThinkAdvisor Tuesday in an email.

“Operating within the limitations of the exemption, the DOL has done an excellent job of giving real substance to requirements to act in the customer’s best interest and ensure that conflicts of interest are not allowed to inappropriately influence recommendations,” Roper said.

Assuming Gary Gensler “is confirmed this week as expected” to be chairman of the Securities and Exchange Commission, “we hope for similar guidance from the SEC,” Roper added.

Said Roper: “The rubber really meets the road in the answer to question 16 on mitigation of conflicts. It is really strong and provides a model we hope the SEC will follow. If they do, investors may actually start receiving the best interest advice they’ve long been promised.”

She noted that “while there are still areas where the rules themselves will need to be shored up, at both DOL and SEC, this is an important step in the right direction.”

The guidance provides questions a retirement investor can ask when interviewing potential advice providers, background information to help them understand the purpose of each question, and investor-focused FAQs about the exemption, Labor said.

Also provided is a set of compliance-focused frequently asked questions for investment advice providers who are relying, or planning to rely, on the exemption.

ERISA attorney Fred Reish of Faegre Drinker told ThinkAdvisor Tuesday in another email that Labor’s guidance on “’Choosing the Right Person’ is directed to participants and it could provide helpful information to participants in making rollover decisions.”

The FAQ, meanwhile, “is directed to financial institutions, such as broker-dealers and investment advisors,” Reish said.

In its essence, “it is a conversational, easy-to-read explanation of what 2020-02 [the fiduciary PTE] requires and why the DOL made some of its decisions on fiduciary status and about the conditions to be satisfied in order to obtain the benefits of the exemption,” Reish explained. “But, there was nothing new. Almost all of the information in the FAQs is found somewhere in the lengthy preamble to 2020-02. The FAQs will be helpful, though, to help people understand the rule and its requirements. It’s a starting point for compliance.”

Labor said its guidance is limited to the application of federal retirement laws to advice concerning investments in plans covered by the Employee Retirement Income Security Act, such as 401(k) plans and the Internal Revenue Code, such as IRAs.

Labor said that it is continuing to review “issues of fact, law and policy related to the exemption, and more generally, its regulation of fiduciary investment advice.”