DOL Releases Substantially Altered Fiduciary Rule

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By Sean Forbes

April 6 — The Department of Labor released a substantially revised final version of its controversial fiduciary rule that's intended to ensure that retirement savers get investment advice in their best interest.

At an April 6 event at which they unveiled the rule, Labor Secretary Thomas E. Perez and Democratic lawmakers who have supported the effort recognized the DOL's work isn't done yet, and that they will continue to have to defend the regulation.

“It's been a tough fight” to get the rule across the finish line, Sen. Elizabeth Warren (D-Mass.) said. “And there may be more fighting to come.”

Warren also cheered the release with a “Woo-hoo!,” which Sen. Cory Booker (D-N.J.) called the “rallying cry for the retirement security in America.”

The fight Warren mentioned is a near-guarantee. Rep. Peter Roskam (R-Ill.) continued to promote a bill (H.R. 4294)—known as the SAVERS Act—that he is sponsoring that would put into place an alternate best-interest standard and prevent the rule from taking effect unless Congress approved the changes.

“We share in the administration’s goal of raising the bar for the financial services industry by requiring advisors to serve in their clients’ best interests,” Roskam said in a statement. “We look forward to passing the SAVERS Act to root out the bad apples while also preserving access to retirement advice for all Americans, not just the wealthiest among us. The SAVERS Act is clearly the best path forward. It's bipartisan, bicameral, and better.”

The bill has little chance of being enacted. President Barack Obama has promised to veto any legislation that would thwart the rule.

Meanwhile, those both pro and con have plenty of reading ahead—the rule, including the exemptions from the Employee Retirement Income Security Act and the preambles to each component, tops 1,000 pages.

‘Significant Changes.'

Despite the possibility of more fighting over the rule, the DOL did make significant changes that take into account the many comments and criticisms the department has heard over the past year in thousands of comment letters and four days of hearings, as well as in hundreds of private meetings with industry and consumer representatives since the department began its project in 2010.

Among the key changes to the rule, which is also known as the conflict-of-interest rule, are:

  • A clarification of what constitutes retirement advice. Advisers won't act as fiduciaries merely because they recommend that a customer hire them to render advisory or asset management services. The rule also clarifies that investment advice doesn't include communications that a reasonable person wouldn't view as an investment recommendation, such as a newsletter; commentary on television, radio or public media talk shows; remarks made in widely attended speeches and conferences; research papers; marketing materials; and general market data.
  • The best-interest-contract exemption—which DOL Secretary Thomas E. Perez considers the “heart” of the rule—is available for more advice, such as being available for proprietary products and any assets, not just those listed in the proposed rule. The BICE is also available for advice to small businesses that sponsor 401(k) plans, as well as advice to individual retirement account owners and plan participants.
  • The BICE requirement was eliminated for ERISA plans and their participants and beneficiaries. However, advisory firms must acknowledge in writing that they, and their advisers, are acting as fiduciaries when providing investment advice.
  • Flexibility on when to enter into a contract, so that potential clients don't need to sign on the dotted line the moment they walk in the door.
  • Only the firm and the client must sign the contract. Under the proposed rule, a firm's advisers also would have had to sign.
  • Streamlining and simplification of disclosures, which now focus on the firm's conflicts of interest.
  • Data-retention requirements are eliminated. Instead, firms must retain only the records showing that they complied with the rule.
  • A “level fee” provision, which allows advisers and firms that receive only a “level fee” in connection with the advice they provide to rely on the BICE without entering into a contract so long as special attention is paid and documentation is kept to show that certain specific recommendations, including a recommendation to roll over assets from an employer plan to an IRA, are in the customer's best interest.
  • Grandfathering for additional compensation from previously acquired assets advisers received prior to the BICE.
  • A phased-in extended implementation period. The rule will take effect in April 2017, but firms will only be required to comply with more limited conditions in order to take advantage of the BICE, including acknowledging their fiduciary status, adhering to the best-interest standard and making basic disclosures of conflicts of interest. The other requirements will go into full effect on Jan. 1, 2018. During the phase-in period, the DOL will focus on compliance assistance.


    Phyllis C. Borzi, assistant labor secretary for the DOL's Employee Benefits Security Administration, said the final rule shows that the department took into account the multitudinous comments it received.

    “There are two things that I hope you will take away,” Borzi told Bloomberg BNA April 5. “We listened, we made efforts to address the concerns, and we think the rule is stronger and better than the rule we proposed.”

    In getting to the final rule, Borzi referred to comments that Perez had made when talking with one commenter: “ ‘If you want to make good policy, you set a big table, you let anybody who wants to come to the table to participate, you listen, and then you have humility.' ”

    To Perez's comment, Borzi added, “And I think you'll see humility in this reg,” reflecting that her agency “didn't hesitate to abandon” aspects of the proposal when it heard better ideas.

    To contact the reporter on this story: Sean Forbes in Washington at

    To contact the editor responsible for this story: Jo-el J. Meyer at

    For More Information

    In addition to the final rule, the DOL also released guidance on the adoption of the class exemption for principal transactions in certain assets between investment advice fiduciaries and employee benefit plans and IRAs; the new best-interest-contract exemption; and revisions to Prohibited Transaction exemptions 86-128 and 75-1, 75-1, 77-4, 80-83 and 83-1, 84-24, and 75-1.