The Department of Labor today issued its long-awaited re-proposal to regulate investment advice fiduciaries under the Employee Retirement Income Security Act. The re-proposal includes two major regulatory actions: a reinstatement of the so-called “five-part test,” which determines whether a person renders investment advice under ERISA and a proposed class exemption. This exemption would be available to banks—among other investment advice fiduciaries—and would permit those entities to receive compensation as a result of providing fiduciary investment advice, including advice to roll over a participant’s account in an employee benefit plan to an IRA and other similar types of rollover recommendations.
The new proposed class exemption would require fiduciary investment advice to be provided in accordance with the following “impartial conduct standards” to advance retirement customer protections: a best interest standard; a reasonable compensation standard; and a requirement to make no materially misleading statements about recommended investment transactions. The exemption would include other protections that would require disclosures to retirement investors, conflict mitigation and a retrospective compliance review. The DOL noted that this approach further will preserve wide availability of investment advice arrangements and products for retirement investors.
ABA has long advocated for an investment advice standard that is consistent with the provisions of ERISA and that preserves consumer choice and protections. Previous DOL proposals—including a 2016 final rule that was later vacated by a federal appeals court—had resulted in a definition of investment advice that was overbroad and created considerable uncertainty and risk as to when a person is, or is not, acting as a fiduciary under ERISA. ABA noted that this new proposal should allow banks to provide their retirement customers the opportunity for a financially sound retirement.
Comments are due 30 days after publication in the Federal Register. ABA is reviewing the proposal and will submit a comment letter.