Legal experts say advisors and brokers can expect tougher fiduciary regulations in amended rules that the U.S. Department of Labor submitted for review to the Office of Management Budget (OMB) earlier this month.

Consumer and industry groups, meanwhile, are pressing their cases on the hotly debated proposals, which are expected to be put out for public comment soon.

The agency wants to increase the number of financial advisors who are deemed fiduciaries under federal statute, said Fred Reish, a partner with Faeger Drinker said.

"I expect that the proposed regulation will say that a rollover recommendation is fiduciary advice, which would mean that a person recommending a rollover would need to engage in a process to determine if the recommendation to take the money out of the plan and the recommendation to invest the money in a rollover individual retirement account was in the best interest of the participant,” Reish said.

The OMB's website states that the "rulemaking would amend the regulatory definition of the term fiduciary ... to more appropriately define when persons who render investment advice for a fee to employee benefit plans and IRAs are fiduciaries within the meaning of section 3(21) of ERISA."

The agency went on to state, "The amendment would take into account practices of investment advisers, and the expectations of plan officials and participants, and IRA owners who receive investment advice, as well as developments in the investment marketplace, including in the ways advisers are compensated that can subject advisers to harmful conflicts of interest." 

Reish said the rule is likely to apply to rollover advice regarding individual retirement annuities, which are like IRAs. The insurance and annuities industry is closely watching how DOL handles exemptions that apply to them.

“I think that the DOL will propose to amend 84-24 [the exemption insurers currently use to mitigate conflicts] to add requirements for acknowledgement of fiduciary status, a best interest process, a disclosure of conflicts of interest and a limitation on unreasonable compensation.”

“But I don’t think that it will require that an insurance company be a co-fiduciary with a fiduciary insurance agent," Reish said. "However, it is possible that the amendments will impose some duty on insurers for heightened review of whether recommendations to roll over into annuities is in the best interest of the participant."

Jason Berkowitz, chief legal and regulatory affairs officer at the Insured Retirement Institute, is among the industry lobbyists scheduled to meet with OMB officials to press the annuities industry’s case one last time before the proposal is issued for public comment.

“Based on rhetoric we’ve heard from the DOL, we think that it will almost definitely include changes to add greater fiduciary duties and that would include potentially some level of responsibility for insurance companies for the financial professionals who sell their products,” Berkowitz said.

That’s a tough obligation for producers “because they’re not tied to any one particular insurance company or affiliated with a broker-dealer or a bank, so they don’t have a financial institution that is both eligible and capable of serving as co fiduciary,” he added.

Berkowitz said he’d like to think the DOL “has listened to what we’ve told them about annuities” and takes into account the fact that Congress has increased access to annuities in both recent SECURE and SECURE 2.0 acts.

The veteran lobbyist said the industry supports higher best interest standards for annuities, which have been adopted by 40 states to date. He also said he expects to have constructive conversations with the DOL but does not intend to go back to 2016, when the agency’s Obama administration fiduciary rule made it nearly impossible for producers to provide clients with advice.

“I think we’ve demonstrated that if [conversation] fails, we are willing to pursue a litigation strategy and have been successful,” Berkowitz said. The IRI was one of numerous plaintiffs that successfully sued the DOL to overturn the Obama-era fiduciary rule.

Reish said the DOL will need to take into account several court setbacks, including a recent Florida federal court’s decision to strike down the agency’s expansion of a fiduciary standard to advisors providing first-time advice.