The Department of Labor today released a new rule significantly broadening the definition of an investment advice “fiduciary” under the Employee Retirement Income Security Act, or ERISA. Under the final rule, a bank or other financial institution or representative assisting customers with a one-time rollover transaction likely will be deemed a “fiduciary.” One-time annuity transactions also will be captured under the rule.
The Biden administration pushed for adoption of the rule, saying it would ensure that advisers are not steering clients to products and fees that make advisers money but may not be the best choice for savers. The final rule expands the scope of an investment advice “fiduciary” by substantially rewriting the current regulation’s so-called “five-part test.” As a result, there will likely be other nonfiduciary services that now will likely be captured as “fiduciary” under the rule, with its attendant liability risks and compliance costs.
The American Bankers Association previously expressed concerns that DOL’s proposal was overbroad and overreaching, and the association is analyzing the final rule to determine its effects on banks acting as retirement service providers for their customers. Although the department has sought to clarify through illustrations the dividing line between fiduciary and nonfiduciary activity, banks and other institutions providing retirement services to customers will need to reassess the full range of their investment programs and activities, particularly those that currently are considered nonfiduciary, to determine whether and the extent to which such activities may now trigger ERISA fiduciary status, according to ABA.
