The Department of Labor is moving toward tightening its existing fiduciary definition by possibly labeling all advice, even first-time conversations, as fiduciary advice, according to a securities industry attorney.
The DOL’s investment advice package, which went live in July, already renders as fiduciary any rollover advice an advisor or financial professional delivers to investors regarding their retirement accounts.
Edging advisors closer to a blanket fiduciary rule would return the DOL to its 2016 fiduciary rule, which was overturned in court, Brad Campbell, partner at the Faegre Drinker law firm, said during the firm’s “Inside the Beltway” webinar last week.
The DOL’s new fiduciary initiative “is likely to be a very substantial proposal that will harken back to legal fights of 2016, which the DOL ultimately lost,” Campbell said.
The “DOL is taking the position that fiduciary starts with the initial [rollover] conversation. That's a pretty aggressive reinterpretation of what they historically had said, which frankly was ... that most rollovers were not fiduciary,” he noted.
The current DOL rule requires that firms and their advisors follow impartial conduct standards and "self-correct" any violations when making retirement rollover recommendations if they want an exemption from prohibited transactions, such as accepting commissions, revenue-sharing and 12b-1 fees.
Firms and advisors must also make disclosures about any conflicts and provide written analysis showing that the rollover is in the investor’s best interest.
The DOL, however, signaled in its spring 2021 regulatory agenda report that it would once again be rewriting the fiduciary definition. The Employee Benefits Security Administration was expected to issue the notice of rulemaking this past spring. That never happened, and now the industry has done the extensive compliance and training to do business under the DOL rule package that took effect in July.
As a result, “most of the industry is now already complying with a standard that ... is pretty far down the road," said Campbell, a former assistant labor secretary under President Bush.
"Yet the DOL still says it's not enough and wants to again change the rules on us. It's not the most regulatory efficient way to reduce costs and turbulence in the marketplace, but it's the path they've chosen."