DOL Announces Proposed Rule: Updated “Investment Advice Fiduciary” Definition, Expanded Scope of Current Fiduciary Requirements

November 1, 2023

What happened?

On October 31, 2023, the Department of Labor proposed a new rule that would extend the current definition of “investment advice fiduciary” to include advisers when they “give investment advice for a fee to retirement plan participants, individual retirement account owners and others,” according to the DOL’s press release. The White House’s statement on the proposed rule claims that the DOL’s proposal is part of a broader administration initiative targeting “junk fees” in retirement investment advice.

According to the proposed rule text, the definition of an “investment advice fiduciary” would be any person that:

1. “provide[s] investment advice or makes an investment recommendation” to a retirement investor “for a fee or other compensation, direct or indirect;” and
2. Makes the recommendation in one of the following contexts:
   • When the person directly or indirectly has “discretionary authority or control…with respect to purchasing or selling securities or other investment property;”
   • When the person directly or indirectly “makes investment recommendations to investors on a regular basis as part of their business” and the recommendation is based on the retirement investor’s particular needs or circumstances and may be relied upon by the retirement investor “as a basis for investment decisions that are in the retirement investor’s best interest;”
   • When the person “represents or acknowledges that they are acting as a fiduciary when making investment recommendations.”

In addition to updating the “investment advice fiduciary” definition, the DOL’s proposal includes amendments to seven existing prohibited transaction exemptions. The proposed amendments would tighten requirements for investment advice fiduciaries to give “advice that meets a professional standard of care or duty of prudence, puts the retirement investor first or duty of loyalty and would prohibit advisers from charging more than reasonable compensation or misleading investors.”

What does this mean for me?

The proposed rule represents the DOL’s fourth attempt to expand the definition of investment advice fiduciary. Most recently, the DOL voluntarily dismissed its appeal of the district court decision that struck down the department’s reinterpretation of fiduciary status (and attending exemption, DOL PTE 2020-02), proposed in 2020 with staggered compliance dates into 2022.

It has been a winding road for DOL guidance on fiduciary duty.  The 2023 proposed rule further indicates that the intent to increase protection for retirement investors by increasing compliance requirements is here to stay. Will this rule be more successful than prior attempts?  It is hard to say. The proposal is open for public comment for 60 days, for instructions on submitting comments, see page 2 of the proposed rule.

Fairview provides full-service compliance support for registered investment advisers by creating and implementing comprehensive, sustainable compliance programs, conducting ongoing testing, and conducting evaluations to ensure firms are remaining compliant with current regulations. If your firm requires assistance with understanding and implementing a compliance program, we can help. Contact us today for more information about our services.