DOL will let Trump-era fiduciary rule stand

The Biden administration Department of Labor will let the agency’s fiduciary rule stand, though it will soon provide additional guidance, the regulator announced Friday.

The rule, which was proposed last year and will go into effect next Tuesday, essentially replaces the defunct Obama-era version that regulated investment advice for 401(k)s and rollover IRAs. It provides an exemption under the Employee Retirement Income Security Act for investment advice fiduciaries to receive third-party compensation.

That the Biden administration is allowing the Trump-era rule to go into effect, rather than halting it and potentially revising the rule, is likely a surprise to some in the industry.

However, the final version of the rule also had more regulatory teeth than many expected, given that the DOL also withdrew a 2005 advisory opinion known as the Deseret Letter, a development indicating that the department viewed a recommendation to roll assets out of a 401(k) as the beginning of an advice relationship.

The final version of the rule ended up containing some compromises for both the financial advice industry and consumer advocates, and it will serve as a foundation for what the Biden administration will craft. Almost certainly, the forthcoming guidance will be more consumer-friendly than the investment advice exemption finalized under former DOL Secretary Eugene Scalia, observers said.

Over the past few weeks, the department met with stakeholders, including consumer advocates and industry lobbyists, about the fate of the rule, Fred Reish, partner at Faegre Drinker Biddle & Reath, wrote in an email.

“My understanding is that, surprisingly, many of the participants in the meetings recommended that the rule be allowed to go into effect … It’s not often that consumer groups and the financial services industry agree on policy,” Reish said. “I believe that the financial sector associations agreed because they were concerned that a delay would result in a more difficult rule, while consumer groups believe that the rule was at least a step forward in providing protections to investors in plans and IRAs.”

The DOL could also work on redefining “fiduciary advice” later this year, he noted.


“The exemption in our view improved on the current state for protection of plan participants. Rather than go back to square one, the strategy DOL is playing out makes sense,” said Brian Graff, CEO of the American Retirement Association.

“The industry is benefiting from having some certainty here,” Graff said. “It’s a good thing now that we can start implementing policies and procedures that are reflective of what needs to happen to serve plan participants.”

Although the new regulation goes into effect next Tuesday, there is a temporary enforcement policy that effectively pushes the compliance deadline to Dec. 20, the DOL noted in its announcement. That temporary policy, issued in 2018, does not require advisers to provide written notification of fiduciary status to clients, but it does oblige them to show that they have taken good faith steps to comply with impartial conduct standards and work in clients’ best interest.

“Practically speaking, you can continue to use this much less onerous temporary enforcement policy,” said Jason Roberts, CEO of the Pension Resource Institute. “Firms will use the next 10 months, building their [compliance] programs, but they’re probably not going to incorporate things that cause additional risk until they have to.”

Part of the reason for going with the investment advice exemption, rather than halting it and starting over, is that the industry has been bracing for different forms of a fiduciary standard for decades. The Obama-era rule went into effect in 2017 after a long public outreach campaign and several revisions. The Trump administration opposed that version of the in-force rule, and it was vacated in court in 2018.


The current DOL will likely seek to put a new definition around investment advice, which would lead to a more concrete fiduciary rule, rather than the existing investment advice exemption and interpretation of a five-part test that dates to 1975, Roberts said. The rule going into effect next week serves as a good foundation for further regulation and guidance, he said.

“I’d be shocked if the Biden DOL didn’t attempt to solve what the DOL has tried to solve since even going back to the [George W.] Bush administration, in a final rule defining investment advice,” he said. That could be done while allowing the exemption rule to stand, Roberts noted.

In its announcement Friday, the DOL pointed to forthcoming “related guidance for retirement investors, employee benefit plans and investment advice providers.”

The Consumer Federation of America was among those opposed to the new investment advice rule when it was proposed, “in large part because it was intended to ‘harmonize’ with a weak and undefined standard under the SEC’s Regulation Best Interest,” Barbara Roper, director of investor protection at the group, wrote in an email. That the DOL will issue further guidance is a positive sign, she said.

“In particular, it is essential that the department engage in further rulemaking to close loopholes in the definition of fiduciary investment advice,” Roper wrote. “It will now be up to the new leadership at the DOL and the SEC to ensure that these standards deliver the true best interest standard, backed by real restrictions on harmful incentives, that investors need and deserve when it comes to advice and recommendations regarding their retirement and non-retirement accounts alike.”

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