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November 06, 2023 at 01:02 PM
Tim Hauser, associate solicitor at the Labor Department’s Employee Benefits Security Administration, described Friday the “big-picture” principles behind Labor’s new fiduciary definition.
The “animating principle” behind the definition, Hauser said at the American Law Institute’s life insurance products conference in Washington, is that “if you’re holding yourself out as an investment professional, providing an individualized recommendation to somebody, that you’re holding yourself as being based on their best interest as a retirement investor, you ought to be held to that.”
Such an investment professional “ought to actually be subject to a best-interest standard,” Hauser said.
Under the Employee Retirement Income Security Act, which Labor is charged with administering, that means such an investment professional “should be a fiduciary,” Hauser continued. “That’s how ERISA regulates and protects employee benefit plans and the people that have important authority with respect to those plans.”
If a professional is treated as a fiduciary under ERISA, it’s “pretty straightforward,” Hauser stated, citing four guiding principles of the new rule:
Prudence: “That means when you make an investment recommendation, for example, did somebody purchase an annuity? That you should adhere to an expert standard of care,” Hauser said.
Loyalty: “When you make that recommendation, it needs to put the retirement investor, the plan participant, the IRA owner first,” Hauser stated. “You can’t subordinate their financial interest to your own interest.”
Compensation: “Your compensation should not be more than reasonable,” Hauser said.
Don’t mislead: “You shouldn’t be misleading in your communications about the investment or anything relevant to the investments,” Hauser relayed.
