Pension & Benefits News DOL finalizes exemption on investment advice for fiduciaries
Wednesday, January 13, 2021

DOL finalizes exemption on investment advice for fiduciaries

By Pension and Benefits Editorial Staff

The Department of Labor’s Employee Benefits Security Administration (EBSA) has finalized a new prohibited transaction class exemption for investment advice fiduciaries. The exemption applies to Securities and Exchange Commission (SC)-and state-registered investment advisers, broker-dealers, banks, insurance companies, and their employees, agents, and representatives that are investment advice fiduciaries. The exemption includes protective conditions designed to safeguard the interests of plans, participants and beneficiaries, and IRA owners.

The new prohibited transaction class exemption, which is based on an existing temporary policy adopted after the Fifth Circuit Court of Appeals (Chamber of Commerce of the United States of America v. United States Department of Labor) vacated the Department’s 2016 fiduciary rule package, allows investment advice fiduciaries to offer a wide array of investment advice services in compliance with Impartial Conduct Standards. Impartial Conduct Standards are a best interest standard, a reasonable compensation standard and a requirement to make no materially misleading statements. The appellate court’s order had the effect of reinstating a 1975 EBSA’s regulation defining who is an investment advice fiduciary under ERISA and the Code, commonly known as the “five-part test,” as well as Interpretive Bulletin 96-1 regarding participant investment education.

Since the Fifth Circuit’s 2018 ruling, the SEC has issued a package of advice standards. The standards in the Department’s exemption align with standards of other regulators, including the SEC, according to EBSA.

“This exemption preserves access to investment advice and promotes choice for retirement investors,” said Acting Assistant Secretary of Labor for the Employee Benefits Security Administration Jeanne Klinefelter Wilson. “Under the exemption, investment professionals must plainly tell retirement investors that they are acting as fiduciaries and they must act in the retirement investors’ best interest. In this way, the exemption protects retirement investors by requiring investment professionals to lay down clear markers about their relationship and their conduct with retirement investors.”

The finalized exemption also expresses EBSA’s views on when advice to roll over plan assets to an IRA will be considered fiduciary investment advice under ERISA and the Code.

The exemption will be effective 60 days after publication in the Federal Register. The temporary enforcement policy stated in Field Assistance Bulletin 2018-02 will remain in place for one year after the final exemption is published in the Federal Register.

Source: DOL News Release No. 20-2065-NAT.

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