DOL Fiduciary Rule Revisited – DOL’s Second Attempt to Regulate Advice to Retirement Investors

Aon Advisors Solution

Janene Marasciullo, Member of the Firm in the Employment, Labor & Workforce Management practice, in the firm’s New York office, authored an article in the Winter 2021 Aon Advisor Solutions Newsletter, titled “DOL Fiduciary Rule Revisited – DOL’s Second Attempt to Regulate Advice to Retirement Investors.”

Following is an excerpt:

Individual Retirement Accounts (“IRAs”) are big business. According to the Investment Company Institute, nearly 48 million U.S. households hold $10.8 trillion in IRAs, and 60% of those IRAs were funded with rollovers from employer-sponsored retirement plans. As a result, FINRA and the Securities and Exchange Commission (SEC), have treated rollover transactions as examination priorities. The Department of Labor (“DOL”), which oversees the Employee Retirement Income Security Act (“ERISA”) and issued the ill-fated Fiduciary Rule and the Best Interest Contract (“BIC”) Exemption, is again seeking to regulate rollover transactions and the advice to IRA owners.

On December 18, 2020, DOL issued the “Improving Investment Advice to Workers and Retirees” regulation (“Final Regulation”), which is a bit of a mixed bag. On one hand, it treats BDs, RIAs, banks, and insurance companies (“Firms”) that provide certain kinds of advice about rollover transactions and to IRA owners, as ERISA fiduciaries. ERISA fiduciaries are held to an exacting fiduciary standard of care and may not receive variable compensation or compensation from third parties, unless they comply with the obligations of the Final Regulation or another available exemption. On the other hand, the Final Regulation allows more flexibility in compensation arrangements. On February 12, 2021, DOL confirmed that the Final Regulation will go into effect, as scheduled,2 on February 16, 2021, but also stated that it will continue to work with various stakeholders to improve the Final Regulation. Thus, revisions remain possible. Further, DOL has allowed a transition period, which ends on December 20, 2021, to allow Firms to comply with the Final Regulation. This article summarizes the factors that determine when a Firm is acting as an ERISA fiduciary, and some of the important disclosure obligations of the Final Regulation.