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October 31, 2023 at 05:01 AM
What You Need to Know
- Labor will release its new fiduciary plan Tuesday afternoon, Brainard told reporters.
- The rule applies a fiduciary standard to retirement advice on rollovers and fixed indexed annuities.
- The new fiduciary test is more targeted than the 2016 version, a Labor official says.
The Labor Department will propose a new fiduciary rule Tuesday afternoon for public comment designed “to close loopholes and require that financial advisors provide retirement advice in the best interest of the saver rather than chasing the highest payout,” Lael Brainard, director of the Biden administration’s National Economic Council, said late Monday on a call with reporters.
Rollovers from 401(k)s and recommendations to buy fixed indexed annuities would be considered fiduciary advice under the new rule.
The “Biden-Harris team is determined to people keep more of their hard-earned retirement savings,” acting Labor Secretary Julie Su added on the call with reporters.
The proposed rule, Su said, “would update the definition of an investment advice fiduciary to close the current loopholes.”
For example, “if a financial advisor provides investment advice or makes an investment recommendation to a retirement investor, that advisor would now be required to adhere to high standards of care and loyalty to their clients,” Su explained.
Second, Su continued, “we are proposing amendments to exemptions that are currently available to investment advice fiduciaries. This will ensure that all retirement investors receive the same quality investment advice regardless of the product or service they receive. These updates are designed to close current loopholes and gaps in the law and bring the rule in line with how most people save for retirement in our modern economy.”
The rule, according to Labor’s fact sheet, “would expand the existing fiduciary standard that commonly covers advice over purchasing securities like mutual funds, to include new types of non-securities like fixed index annuities, advice to employers and plan fiduciaries, and one-time advice for transactions like 401(k) rollovers.”
The proposals include a 60-day period for public comments. Labor also intends to hold a public hearing approximately 45 days after the proposals are published.
New Rule vs. 2016 Rule
There are “a number of fairly significant differences” between the new rule and Labor’s 2016 rule that was struck down by the U.S. Court of Appeals for the Fifth Circuit in 2018, an administration official explained during the call.
As to the exemptions addressed in the new rule, the official explained that “there is no best-interest contract exemption,” and there will be “some changes” to the Prohibited Transaction Exemption (PTE) 84-24, which is a broad exemption that the insurance industry relies on.
