May 17, 2023
What Happened?
DOL Abandons Fiduciary Reinterpretation
The Department of Labor (DOL) voluntarily dismissed its appeal of the district court decision that struck down the DOL’s fiduciary reinterpretation of fiduciary status for advisers making rollover recommendations to retirement investors. The DOL’s reinterpretation of fiduciary status had greatly increased the number of advisers that would be deemed investment advice fiduciaries. It was published in tandem with a new exemption (DOL PTE 2020-02) protecting rollover advice from being a prohibited transaction. Implicated advisers rushed to get the protection of DOL-PTE 2020-02 by adopting new policies and procedures by the compliance deadlines of January and July of 2022. Since the DOL abandoned its defense of this investment advice fiduciary reinterpretation, these advisers are no longer investment-advice fiduciaries. If an adviser isn’t a fiduciary, then a rollover recommendation in that context would not be a prohibited transaction, and the protection of DOL PTE 2020-02 would not be needed.
Try Again. Fail Again. Fail better.
This is the third attempt by the DOL to expand the definition of investment advice fiduciary and require heightened compliance procedures of advisers. The first attempt was proposed by the DOL in 2010 and was abandoned after public comments and a hearing in 2011. The second attempt came with a 2015 proposal that produced a final rule in 2016 and a staggered compliance date over 2017 and 2019. The primary exemption under the 2016 Rule was the Best Interest Contract Exemption, or “BIC.” This rule was vacated by the US Court of Appeals for the Fifth Circuit. In 2020, the DOL proposed and then released a reinterpretation of the existing 1975 definition of fiduciary and a new exemption for prohibited transactions “DOL PTE.” This too had staggered compliance dates, faced legal challenges, and now has been dropped during the appeals process. In each instance the DOL tested its boundaries and learned from rulings in federal court. The DOL may use this most recent outcome to guide future efforts.
A Rulemaking for a Fiduciary Rule?
The DOL has already proposed changes to the fiduciary rule. By dropping the court fight over DOL PTE, the DOL may now be able to move more quickly on their rulemaking.
What does this mean for me?
It has been a winding road for DOL guidance on fiduciary duty. While a rulemaking remains to be seen, the intent to increase protection for retirement investors by increasing compliance requirements for advisers is here to stay.
Fairview provides full-service compliance support for registered investment advisers by creating and implementing comprehensive, sustainable compliance programs, conducting ongoing testing, and carrying out 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.
