DOL approves final rule on definition of an investment advice fiduciary

The U.S. Department of Labor (DOL) has finalized its Retirement Security Rule, which updates the definition of an investment advice fiduciary.

The final rule requires trusted investment advice providers to give prudent, loyal, honest advice free from overcharges. These fiduciaries must adhere to high standards of care and loyalty when they recommend investments and avoid recommendations that favor the investment advice providers’ interests at the retirement savers’ expense.

The rule states that financial institutions overseeing investment advice providers must have policies and procedures to manage conflicts of interest and ensure providers follow them. It applies when financial services providers give compensated investment advice to retirement plan participants, individual retirement account owners, and plan officials responsible for administering plans.

The final rule is set to take effect on Sept. 23, 2024.

“America’s workers and their families rely on investment professionals for guidance as they save for retirement,” Acting Department of Labor Secretary Julie Su said. “This rule protects the retirement investors from improper investment recommendations and harmful conflicts of interest. Retirement investors can now trust that their investment advice provider is working in their best interest and helping to make unbiased decisions.”

As stated, the rule seeks to prevent advice providers from putting their interests before their clients’. A recent analysis by the Council of Economic Advisers said that conflicted advice could cost savers up to $5 billion per year. It also seeks to ensure that investment professionals can compete for business on a level playing field, instead of being hindered by a system in which different standards exist for advice providers based on the products they recommend.

“These new rules update regulations created nearly a half-century ago that simply are not providing the protections America’s workers need and deserve for their retirement savings so that they can retire with dignity,” Assistant Secretary for Employee Benefits Security Lisa Gomez said. “The investment landscape has changed, the retirement landscape has changed, and it is critical that our regulations are responsive to those changes so that workers can reach the secure retirement that they work for decades to finally achieve.”

The Insured Retirement Institute (IRI) came out against the rule, saying it could result in retirement savers losing access to professional financial guidance.

“Based on our preliminary review, in issuing this unnecessary and redundant rule, DOL disregarded data showing how millions of lower- and middle-income consumers will be deprived of access to affordable retirement planning assistance,” Wayne Chopus, President and CEO of IRI said. “This rule is the product of a severely flawed rulemaking process and defies applicable judicial precedent and the limitations on DOL’s rulemaking authority as established by Congress.”

IRI said it will support a Congressional Review Act (CRA) resolution to reject the DOL regulation.

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