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Update on Fiduciary Rule

The U.S. Department of Labor (DOL) issued a proposed regulation on April 14, 2015 that would expand the types of activities that would be categorized as fiduciary-level investment advice under ERISA. According to the DOL, the purpose of the rule is to update a five-part test (introduced in 1975) that applied to fiduciary investment advice prior to the growth of self-directed participant plans and Individual Retirement Account (IRA) rollovers.

The proposed rule would require any person who provides advice to act in the customer’s best interest and impose restrictions on certain activities – especially how advisors are compensated and manage conflicts in providing their services. The proposal would also expand the scope of the rule to cover advice provided on IRAs.

The original proposal was introduced in 2010 but was withdrawn the following year due to concerns not only across the industry but also in Congress; there continues to be opposition to the new rule. In June, the Senate Appropriations Committee approved a funding bill, which denies funding that would enable the Department of Labor (DOL) to implement the fiduciary rule.

Written comments on the rule were due by July 20, 2015 and are available on the DOL website. The DOL announced that the public hearings will be held on August 10, 11 and 12. Following the hearings, the DOL will then re-open the comment period. The DOL would then issue a final rule several months after receiving the final comments. The DOL has indicated that it will require full compliance with the rule starting 8 months after the final rule is published.