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DOL Fiduciary Rule: Final Rule Initial Reactions

On April 23, 2024, the Department of Labor (DOL) announced updates to the investment advice fiduciary regulation (formally known as the Retirement Security Rule). This regulation brings many more financial professionals under the ERISA fiduciary umbrella, including insurance agents providing investment advice on retirement plan assets.

Bonnie Treichel, Chief Solutions Officer at Endeavor Retirement, hosted a webinar to recap the initial takes from the regulation along with experts:

  • Christopher Simmers: Compliance Director at Endeavor Retirement
  • Jamie Hopkins: CEO of Bryn Mawr Capital Management and SVP of Private Wealth Management at Bryn Mawr Trust

For those of you wanting to rewatch or in case you missed it – click the image below for a link to our discussion and download the slides here!

The panelists covered a lot of ground including the three main changes in the fiduciary advice regulation:

Updates to the investment advice regulation:

The new regulation redefines who may become a fiduciary under ERISA when a financial professional provides “investment advice” with regard to a plan or an individual retirement account (IRA). Since 1975, a five-part test has been used to determine what constitutes investment advice. This test is replaced by the determination that an investment advice fiduciary provides advice under the following conditions:

  • the financial professional makes an investment recommendation to a retirement investor;
  • the recommendation is provided for a fee or other compensation, such as commissions; and
  • the financial professional holds itself out as a trusted adviser by
    • specifically stating that it is acting as a fiduciary under Title I or II of ERISA; or
    • making the recommendation in a way that would indicate to a reasonable investor that it is acting as a trusted adviser making individualized recommendations based on the investor’s best interest.

Updates to two administrative exemptions:

Updates to two administrative exemptions, also called prohibited transaction exemptions (PTEs): (1) PTE 2020-02, which is broadly made available for conflicted advice arrangements and (2) PTE 84-24, which is similar to PTE 2020-02, but is narrowly tailored to independent insurance agents. When financial professionals act as a fiduciary and engage in a prohibited transaction, then a PTE is required.

For many financial professionals, PTE 2020-02 will be utilized in the context of rollovers. The DOL made clear that a recommendation to take a distribution, even if it is not accompanied by a recommendation of a specific investment, is a fiduciary recommendation subject to ERISA.

Updates to other PTEs:

Amendments to a group of other PTEs that would prohibit their previously allowed use in fiduciary investment advice transactions, including PTE 75-1, 77-4, 80-83, 83-1, and 86-128.

Action Items for Financial Professionals

  1. Review the final rule (before it becomes effective in September!), understand, and ask questions about how it applies to your business.
  2. Beyond your own business, think about how this rule may impact your clients – both individual wealth management and retirement plan sponsors – and consider if any proactive communication is necessary.
  3. Assist plan sponsors in preparing for questions from plan participants.
  4. Assist plan sponsors in determining if any service providers in their ecosystem will be a fiduciary (who were not previously) a fiduciary (e.g., recordkeepers).
  5. Develop a strategy for continuing to monitor the coming phases with the rule (e.g., changes in applicability date, FAQs and other interpretive guidance)

For financial professionals, consider these action items and reach out to learn more about how Endeavor Retirement can help you consider next steps in light of the fiduciary rule. Remember that changes are generally effective on September 23, 2024, with a one-year transition period after the effective date for certain conditions in the PTEs.

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DOL Fiduciary Rule: Final Rule Initial Reactions