DOL Changes Fiduciary Rule Advice Definition Scope

What You Need to Know

The definition excludes sales pitches.
The definition would include individualized advice.
It could include transactions involving health savings accounts.

Officials at the U.S. Department of Labor say they have narrowed the scope of the new investment advice fiduciary definition.

Department officials posted a preview version of the final rule Tuesday. The final rule is set to go in the Federal Register, an official government regulatory publication, Thursday. If implemented as written, it will affect how regulators apply the Employee Retirement Security Act of 1973 fiduciary requirements to people and companies that help retirement savers manage the assets in 401(k) plans and individual retirement accounts.

The American Council of Life Insurers, Finseca, the Insured Retirement Institute, the National Association of Insurance and Financial Advisors and other groups representing life insurance and annuity issuers, distributors and sellers have all expressed concern that the final rule is too similar to the draft released in October 2023, and they officials at the groups have indicated that they are likely to fight the new definition in court and in Congress.

Labor Department officials contend that the revised version could address many life and annuity industry commenters’ concerns that the definition could term used car salespeople or life insurance agency receptionists into accidental retirement plan fiduciaries.

A new paragraph in the final rule confirms that “sales pitches and investment education can occur without ERISA fiduciary status attaching,” officials say in the preamble, or official introduction, to the final rule.

Sales pitches come under the definition only if salespeople appear to be giving personalized investment recommendations that a retirement saver can rely on, officials say.

“The provision of investment information or education, without a recommendation, is not advice within the meaning of the final rule,” officials add. “Nothing in the final rule requires mere sales pitches that fall short of the definition to be treated as fiduciary investment advice.”

Officials also emphasize that they want retirement investment advice providers to put the savers’ interests first but do not care whether the advice providers are paid with fees or commissions.

The basics: The Employee Benefits Security Administration, a Labor Department agency, has been working on the definition since 2010.

The department received about 400 individual comments on the draft regulation and about 20,000 petition submissions.

The new final rule is set to take effect 150 days after the official Federal Register publication date.

Some industry groups have complained that the Labor Department rushed the regulation out, but the department says it met statutory requirements and robust input from affected parties.