Are You My Fiduciary? The DOL Takes Aim At A Fiduciary Standard For All Giving Retirement Investment Advice
The Department of Labor is pressing forward in its efforts to impose a fiduciary standard on anyone giving retirement investment advice. A fiduciary standard would require every retirement investment adviser to put the client’s best interest first and disclose any conflicts that may prevent the adviser from doing so. Financial advisers are already subject to a similar standard. Courts have interpreted the Investment Advisers Act of 1940 to impose a fiduciary duty on financial advisers by operation of law. Conversely, advisers who act as broker dealers are governed under a suitability standard. A fiduciary standard would dramatically impact issues related to disclosure of conflicts of interest, compensation and fees, and qualifications.
The Labor Department’s proposed rule comes at the behest of many who are concerned that a market for investment advice that imposes a fiduciary standard on advisers but not brokers leaves the investment advice consumer exposed to unwanted risks. The proposed rule has garnered significant attention and intense scrutiny, drawing 330,000 comments from a wide variety of sources.
The myriad of concerns include fears of market disruption and limited access to retirement investment advice. Those concerned with access have argued that the heightened standard will limit accessible retirement investment information and stymie efforts to increase employee engagement. American Benefits Council senior vice president for global retirement and compensation policy, Lynn Dudley, warned that benefits education programs, including call centers, in-person meetings, investor education, and external investment advisory programs may have to be reconsidered. As a solution, Ms. Dudley recommended that safe harbors for employers be created so long as employers draft and abide by a written policy.
Some argue that the DOL should stand down altogether until the Securities and Exchange Commission develops its own fiduciary rule. Former chairman of the SEC, Arthur Levitt, champions the DOL’s drive to put a new fiduciary rule in place and warns that the SEC is burdened by the rulemaking requirements of the Dodd-Frank Act and other legislation and will be slower to move on implementing the protections.
Ultimately, the DOL is getting positive and constructively critical feedback and has represented that publication of a final rule is not a question of “if” but “when.” Until the file rule is published, those dispensing investment advice who are not currently held to a fiduciary standard are forced to wait with bated breath to see what the rule and their new playing field will look like.
 The Investment Advisers Act of 1940 excludes from the definition of financial adviser “any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor”; the practical effect of which is to exclude from the definition (and application of the fiduciary standard) all advisers who do not charge asset-based fees.