The Department of Labor announced today that its investment advice rule -- a holdover from the Trump administration -- will take effect as scheduled Feb. 16.
There had been wide speculation that President Joe Biden would withdraw the rule in favor of a replacement that closer mirrored the fiduciary rule standard put forth by the Obama administration.
Instead, the Employee Benefits Security Administration confirmed that “Improving Investment Advice for Worker & Retirees,” an exemption for investment advice fiduciaries, will go into effect as scheduled. In the coming days, the agency will publish related guidance for retirement investors, employee benefit plans and investment advice providers.
Jason Berkowitz, chief legal and regulatory affairs officer with the Insured Retirement Institute, said IRI members will be ready to comply with the new rules. However, the trade association still has issues with the regulation.
"We continue to disagree with the expansive interpretation of the five-part test contained in the rule's preamble," Berkowitz said. "This interpretation is inconsistent with the 2018 decision by the U.S. 5th Court of Appeals in U.S. Chamber of Commerce v. U.S. Department of Labor. Further, the rule does not provide a clear and workable path to exemptive relief for independent insurance agents."
The Trump administration replacement rule has two main parts: a new prohibited transaction exemption allowing advisors to provide conflicted advice for commissions; and a reinstatement of the "five-part test" from 1975 to determine what constitutes investment advice.
It is a successor rule to the unpopular fiduciary rule published by the Obama administration, which was later tossed out by a federal appeals court.
“This exemption allows for important investor protections, including a stringent ‘best interest’ standard of care for fiduciary recommendations of rollovers from ERISA-protected retirement accounts,” said Deputy Assistant Secretary of Labor for the Employee Benefits Security Administration Ali Khawar. “We recognize that investment advice providers have been preparing for the exemption, and this step will allow them to implement important system changes. That said, we will continue our stakeholder outreach to determine how we might improve this exemption, the rule defining who is an investment advice fiduciary, and related exemptions to build on this approach.”
The temporary enforcement policy stated in Field Assistance Bulletin 2018-02 will remain in place until Dec. 20, 2021.