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Department of Labor Issues Final Fiduciary Rule

The Office of Management and Budget has completed its review of Department of Labor's revised fiduciary rule proposal, titled "Improving Investment Advice for Workers & Retirees."

On Tuesday, the Department of Labor issued its “fiduciary rule” that governs investment advice for retirement plans after the Office of Management and Budget completed its review.

The prohibited transaction exemption, dubbed Improving Investment Advice for Workers & Retirees, was submitted to the Office of the Federal Register for publication, and once published, will become effective within 60 days. Click here to view a summary of the regulation’s key provisions.

The original Obama-era DOL fiduciary rule broadened the definition of investment advice fiduciary under the Employee Retirement Income Security Act of 1974 and sought to eliminate conflicted retirement investment advice by placing certain restrictions on commission-based product recommendations.

After surviving multiple federal lawsuits, the rule was vacated in its entirety in a 2-1 split decision in March 2018, ruling that the DOL overstepped its authority in the investment advice arena.

The DOL said that the new exemption is for investment advice fiduciaries and is based on an existing temporary policy adopted after the 5th Circuit’s vacated the 2016 fiduciary rule package.

The new exemption allows investment advice fiduciaries to offer investment advice services in compliance with impartial conduct standards. These standards include a best interest standard, a reasonable compensation standard, and a requirement to make no materially misleading statements.

The exemption notice also expresses the DOL’s views on when rollover advice could be considered fiduciary advice under ERISA and the Internal Revenue Code.

The DOL claims that the standards align with those of other regulators, including the Securities and Exchange Commission’s broker advice rule, Regulation Best Interest.

U.S. Secretary of Labor Eugene Scalia said. “In tandem with action taken last year by the Securities and Exchange Commission, this exemption gives Americans a greater opportunity to invest in the American economy with the assistance of professionals acting in their best interest.”

Due to the tight 60-day timeline, it is unclear if the regulation will survive under President-elect Joe Biden, whose inauguration is scheduled to take place in 35 days on Wednesday, January 20th.

In its 2020 Democratic Party Platform, the party vowed to reverse certain investment advice regulations if Biden beat President Trump in the 2020 election.

“Democrats believe that when workers are saving for retirement, the financial advisors they consult should be legally obligated to put their client’s best interests first,” stated. “We will take immediate action to reverse the Trump Administration’s regulations allowing financial advisors to prioritize their self-interest over their clients’ financial wellbeing.”

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