Navigating the New DOL Fiduciary Rule: A Roadmap for Retirement Advisors

The landscape of investment advice fiduciary status has undergone significant changes with the Department of Labor’s (DOL) recent amendments to regulations under the Employee Retirement Income Security Act of 1974 (ERISA). 1 These changes, finalized in April 2024, represent the latest effort to redefine who qualifies as an investment advice fiduciary and to update related prohibited transaction exemptions. 1

Brokers and financial professionals operating in this space must understand these changes and adapt their practices to remain compliant and serve the best interests of their retirement clients. Even though The Contractors Retirement Plan’s bundled offer includes the services of a 3(38) investment fiduciary, brokers need to understand the highlights of the new Rule, review their practices, and approach to determine if any of their actions would apply to the updated rule.

Significant Changes from the 2023 Proposed Rule:

• The addition of the term “professional” clarifies that investment recommendations must be provided regularly as part of a business.
• Removal of a test involving discretionary authority or control over certain transactions avoids potential overreach in defining fiduciary status.2
• Clarification regarding sales conversations and investment education helps distinguish between educational information and actual investment advice.
• The exclusion of “investment advice fiduciaries” from the definition of “retirement investors” prevents unintended consequences for certain interactions. 2

New Test for Investment Advice Fiduciary Status:

• The previous five-part test from 1975 is replaced by a more streamlined two-part test. 3
• The focus shifts towards making recommendations of securities transactions or investment strategies to retirement investors. 3
• The new test emphasizes the importance of making recommendations under circumstances that indicate trust and are in the retirement client’s best interest. 3

Prohibited Transaction Class Exemptions:

Amendments to prohibited transaction exemptions necessitate compliance with PTE 2020-02 to receive any benefits. 3

Expansion of exemptions broadens the scope to cover various types of investment products and services.

The introduction of streamlined requirements simplifies compliance for certain types of transactions, such as those related to discretionary investment management services.

Next Steps for Retirement Brokers:

1. Understand the New Fiduciary Status Test:

• Brokers need to grasp the nuances of the new two-part test to determine whether they qualify as fiduciaries.
• They must ensure that any recommendations made to retirement clients meet the criteria laid out in the test, emphasizing trust and the client’s best interest.

1. Review Compliance Procedures:

• Brokers should carefully review and update their compliance procedures to align with the amended regulations.
• This includes acknowledging fiduciary status in writing to retirement clients, disclosing services and conflicts of interest, and adhering to impartial conduct standards.

1. Stay Informed and Monitor Developments:

• Brokers need to stay informed about ongoing legal challenges and developments related to the new regulations.
• It’s essential to monitor updates or revisions to guidance from regulatory authorities to ensure ongoing compliance and mitigate potential risks.

The DOL’s amendments to investment advice fiduciary regulations signify a significant shift in how fiduciary status is defined and regulated. Brokers and financial professionals must adapt to these changes by understanding the new test for fiduciary status, reviewing compliance procedures, and staying informed about ongoing developments. By doing so, they can navigate the evolving regulatory landscape and continue to serve the best interests of retirement clients.

For more information on the new Fiduciary rule and how you can prepare, review the useful articles below.

Sources:

1. “DOL Finalizes New Retirement Security Rule.” Gallagher, May 13, 2024, www.ajg.com/us/news-and-insights/2024/may/dol-finalizes-new-retirement-security-rule/ .
2. “Yet Another DOL Fiduciary Rule Released: Will the ‘Regular Basis’ of Prior Outcomes Follow ‘Suit’?” May 8, 2024, www.lexology.com/library/detail.aspx?g=8c25078e-52b7-406f-af72-1705aa928a63 .
3. JD Supra. “A Matter of Trust: DOL Issues Final Investment Advice Fiduciary Rule.” JD Supra, [Publication Date], jdsupra.com/legalnews/a-matter-of-trust-dol-issues-final-1411657/ .

For over 40 years, The Contractors Plan has been helping contractors submit leaner bids to win more jobs. We provide our clients with quarterly updates on issues and trends that may affect business. We monitor developments on the state level as well as the Federal. When you choose The Contractors Plan, you can rest easy knowing that we’ll keep you informed and alert you to any changes that may be on the horizon. We will continue to monitor and communicate Fiduciary Rule changes and updates.