On April 14, 2015, the U.S. Department of Labor ("DOL") released a controversial proposal that would require financial advisors to put their clients' interests ahead of their own when recommending retirement investments. Businesses and financial advisors that manage retirement investment accounts should be aware of the new rule and how it might affect their business.

While speculation about expansion of the so-called "Fiduciary Standard" has been rampant for years, yesterday's release confirms that government regulators intend to expand the Fiduciary Standard. Specifically, the expansion will result in coverage of a larger number of financial advisors by closing two loopholes in the definition of "retirement investment advice." Although firms would still be allowed to set their own compensation rates, the DOL's proposed rule would:

• establish a best-interest contract exemption that would legally require brokers to act in their clients' best interest and;
• require brokers to disclose all conflicts of interest to their clients.

The Fiduciary Standard was originally established under the 1974 Employee Retirement Income Security Act ("ERISA"), but it does not apply to all financial advisors. Expansion of the Fiduciary Standard was originally proposed in 2010, but was withdrawn in 2011 after protest from the financial services industry. Expansion of the rule returned to the forefront in February 2015 with powerful backing from President Obama.

The government asserts that without expansion of the Fiduciary Standard, many middle-class families whose retirement savings lie in IRAs and 401(k) plans fall victim to conflicts of interest by financial advisors that counsel retirement plan sponsors. A recent report from the White House Council of Economic Advisers contends that conflicted retirement-savings advice costs investors as much as $17 billion per year. Industry groups opposed to an expanding Fiduciary Standard—such as the Securities Industry and Financial Markets Association—contended the White House analysis was faulty and that existing investor protections were sufficient. Yesterday's proposal from the DOL indicates that opposition fell on largely deaf ears.

The DOL's proposal is twofold:

• First, the rule would force broker-dealers who provide one-time advice, i.e., broker-dealers that do not provide ongoing management of funds and other services, to fall within the definition of "investment advisers" under ERISA.
• Second, the rule eliminates a provision that says for a broker to be considered a fiduciary, the advisor and the client must agree that information provided by the broker was the primary basis for an investment decision.

The DOL's proposed rule will have a 75-day comment period after publication in the Federal Register. The DOL will then host a public hearing within 30 days of the comment period ending and take more comments after the public hearing transcript is published. After the DOL gathers feedback, it may amend the proposal and put forward a final rule.

Importantly, other regulatory agencies with differing standards remain in play. For example, many financial advisors are regulated by the Securities and Exchange Commission ("SEC") and the Financial Industry Regulatory Authority ("FINRA"), which have different standards for financial advice than the DOL. The SEC is considering enhancements to its own fiduciary standard, but has yet to release a proposal. Many in the financial services industry believe the SEC alone should be responsible for establishing an industry-wide fiduciary standard.

The fight over expansion of the Fiduciary Standard will surely continue – members of both parties in Congress have expressed their disapproval with the DOL's proposal – but businesses should keep a close eye on how the proposal progresses through the administrative law-making process. The DOL proposal may also indicate other changes to the regulation of financial advisors by FINRA or the SEC.