DOL’s Proposed Changes to Fiduciary Rule and Rollover Exemption – What You Need to Know

January 2, 2024

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The Department of Labor (DOL) has again proposed to revise its definition of “fiduciary advice” under ERISA. This could significantly impact your business if you work with retirement investors or plans. The IAA supports efforts to prioritize retiree interests and believes that retirement advice should be in the retiree’s best interest. Some aspects of the proposed changes, both to the definition and the accompanying exemption, which allows for advice as to rollovers (also known as PTE 2020-02), could create unintended burdens and hurdles for advisers. The IAA has submitted comments to the DOL and is actively advocating for changes to the proposals that balance investor protection with practical considerations for your firm.

What’s Changing and Why it Matters:

• Expanded Fiduciary Scope: More activities could be considered fiduciary investment advice, potentially subjecting you to stricter responsibilities and potential liability. Since advisers become fiduciaries as soon as they enter into an advisory relationship with a client, these impacts should be limited as long as the DOL allows for a clear “hire me” exception.
• Leveling the Playing Field for Robo-Advisers: Robo-advisers would be treated like all other fiduciary advisers, which will allow all digital advice, with or without human interaction, to benefit from reliance on the exemption for rollover advice.
• Tougher Exemption Eligibility: Proposed changes to PTE 2020-02 may make it harder for advisers to use this key exemption for fiduciary investment advice.
• Increased Compliance Burden: New recordkeeping, disclosure, and reporting requirements could impose a significant administrative burden, especially for smaller firms.

The IAA is Taking Action: We’re actively fighting for changes to the proposals to promote your interests and ensure regulatory clarity. Here are some key recommendations:

• Clarify “Hire Me” Conversations:Clearly distinguish preliminary discussions from recommendations and investment advice.

• Provide an Independent Fiduciary Exception for Certain Institutional Investors: Exclude advice provided to qualified independent plan fiduciaries from the definition of fiduciary investment advice.
• Don’t Include Legally Required Distributions: Avoid unnecessary disclosures for legally required minimum distributions (RMDs) and inherited accounts.
• Provide Equal Treatment for All Digital (Robo) Advice: Ensure that, when adopted, the final modifications allow all digital advice, with or without human interaction, to benefit from reliance on the exemption.
• Don’t Require Website Disclosures: Eliminate a proposed public website requirement and allow existing regulatory filings to satisfy disclosure obligations.

• Allow for Internal Plan Advice: Permit employees within an adviser-sponsored plan to receive investment advice from other qualified firm personnel.
• Don’t Automatically Disqualify Advisers for Foreign Affiliate Crimes: Require adviser certifications as to their lack of knowledge or involvement instead of automatic disqualification for foreign affiliate crimes and other prohibited conduct.
• Shield Sensitive Compliance Measures: Oppose mandatory disclosure of internal compliance documents that contain sensitive information, where disclosure could harm advisers and chill compliance efforts without demonstrably benefiting investors.

• Consider Smaller Advisers: Consider the significant and disproportionate impact of the proposed changes on smaller advisers.

What the IAA is doing for members:

The IAA, in addition to submitting detailed comments on the proposals, is actively engaging the DOL to address our concerns and advocate for changes that benefit you.

We will provide ongoing updates and analysis through our committees, website, newsletters, and social media channels. Stay informed and connected with the latest developments.

Please contact the IAA legal team at iaalegalteam@investmentadviser.org with questions or comments.