The Department of Labor’s Employee Benefits Security Administration will re-propose its fiduciary rules in October, according to the DOL’s Semiannual Agenda of Regulations.
The fiduciary rule, which was initially proposed in 2010, would more broadly define as employee benefit plan fiduciaries people who render investment advice to plans for a fee within the meaning of section 3(21) of the Employee Retirement Income Security Act.
The amendment would take into account current practices of investment advisors and the expectations of plan officials and participants who receive investment advice.
Industry groups came out against the proposal in 2010 and again in 2011 when it was re-proposed because the new rules would change how financial professionals do business.
Broker-dealers and those who work with Individual Retirement Accounts would be held to the same fiduciary standards as their 401(k) plan brethren, which would overturn 40 years of business practices that allowed these individuals to recommend investments in which they receive a commission.
The purpose of the proposal was to level the playing field and make it so investors know that the investment advice they are receiving is in their best interest and not the interest of the person giving the advice.
Many in the brokerage industry had a tough time swallowing the proposed rules, particularly because the DOL didn’t include a cost-benefit analysis with its proposal. Brokerages said the rules would cause them to lose millions of accounts.
IRAs have always been covered by the DOL’s fiduciary rules, though the IRS has never enforced them, Fred Reish, partner and chair of the ERISA Financial Services Team at Drinker Biddle & Reith in Los Angeles, said in a recent interview.
“As a result, over the last 30 or 40 years, a lot of practices have been built up about how advice is given and commissions charged to IRAs so that if those rules had been enforced along the way, there could have been a lot of prohibited transactions.”
He added that many of the practices built up around IRAs are inconsistent with the rules as they exist now, let alone any new regulation. That’s why broker-dealers, banks and insurance companies are fighting the fiduciary rules tooth and nail. They want the new rules to exempt them.