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February 26, 2024 at 02:51 PM
What You Need to Know
- In the preamble to DOL's proposed fiduciary rule, Labor officials give examples of people, like car dealers or HR employees, who are not subject to the rule.
- Labor officials say that, in the end, a judgment must be made based on the totality of the facts and circumstances.
- Some commenters in the insurance industry worry that fears of becoming an accidental fiduciary could have a chilling effect on financial guidance.
This is the latest in a series of columns about annuities and retirement planning.
Could the U.S. Department of Labor’s new proposed definition of fiduciary investment advice put a lawsuit target on the back of life insurance agents who happen to rant about why every retirement saver should invest in, say, baseball cards or gold?
The department raised questions about just how many types of people could end up in a courtroom, pretending not to want to cry, when it posted the definition draft.
That’s one of the many small conflicts inside the long-running fiduciary rule writing saga.
Under the current rules, retirement advisors who simply help with a rollover, do not identify themselves as fiduciaries and have no ongoing relationship with a retirement saver are probably not fiduciaries.
The department now wants to find a way to keep an advisor who moves all of a client’s retirement nest egg into, say, back issues of Mad Magazine from shrugging off any fiduciary duty of care simply because that purchase was a one-time transaction.
Under the proposed rule, the definition of a provider of investment advice could include a person who “either directly or indirectly (e.g., through or together with any affiliate) makes investment recommendations to investors on a regular basis as part of its business and the recommendation is provided under circumstances indicating that the recommendation is based on the particular needs or individual circumstances of the retirement investor and may be relied upon by the retirement investor as a basis for investment decisions that are in the retirement investor’s best interest.”
Elsewhere, in the preamble, or official introduction, DOL officials argue that the “regular basis requirement” would keep the definition from including “the car dealer who suggests that a consumer finance a purchase by tapping into retirement funds” or the “human resources employees of a [retirement] plan sponsor.”
But officials later add that, “Whether someone gives investment recommendations on a regular basis as part of their business is an objective test based on the totality of facts and circumstances.”
A lawyer who was hungry for fiduciary rule violation lawsuit business might assume that a “person” is a corporate person that provides retirement investment advice, and that all of the people who work in that “person’s” offices, including the receptionists and the massage therapists, could, in theory, help deliver that person’s investment advice.
The Problem With Preambles
The preamble of a regulation is just an introduction, not the regulation itself.
Trade groups commenting on draft regulations often note that there’s no guarantee that future generations who are using a regulation will pay any attention to the original draft preamble.
