In a News Release issued September 19, 2011, the Labor Department announced that it intends to re-propose its rule defining who is a fiduciary under ERISA in early 2012. The DOL issued a proposed rule last October that would have, among other things, expanded the definition to include those individuals or entities giving investment advice to plan participants. Financial services firms objected that the rule could hinder the ability of financial advisers to provide unbiased, affordable advice to IRA clients.
 

DOL anticipates re-proposing the regulation to clarify that fiduciary advice is limited to individualized advice directed to specific parties, and to address concerns about the effect of the regulation on routine appraisals and arm's-length commercial transactions, such as swap transactions. Concerns have also been raised about potentially overlapping or conflicting fiduciary regulations under ERISA and the Dodd-Frank Wall Street Reform and Consumer Protection Acts.
 

In addition, according to the DOL, one of the objectives in re-proposing the rule will be to have proposed class exemptions to the fiduciary regulation ready for release when the regulation is re-proposed, which addresses the concerns of financial industry firms that don’t want to risk setting up compliance, training and client communications mechanisms under a new rule before the release of prohibited transaction exemptions. Some practitioners have pointed out that a client may have multiple accounts with the same provider for which there are different standards of care, such as a commission-based account and a self-directed IRA, so that a universal standard would allow financial services firms to comply more efficiently. Anticipated prohibited transaction exemptions will address current fee practices of brokers and advisers and clarify that long-time DOL exemptions that allow brokers to receive commissions in connection with mutual funds, stocks, and insurance products will still apply.
 

DOL’s existing proposed rule has come under considerable fire for almost a year now, and in a letter dated September 15, 2011, Rep. Barney Frank (D-Mass.), ranking member of the House Financial Services Committee, asked DOL Secretary Hilda Solis to withdraw and re-propose the regulation. So, to what extent will the agency have to start over – during an election year no less -- in re-proposing the fiduciary regulation to satisfy all of the concerns?
 

--Mark C. Wolf, Tax Law Editor (Compensation Planning)