The US Department of Labor’s (DOL) new interpretation that rollover advice may be fiduciary “investment advice” for purposes of the Employee Retirement Income Security Act of 1974, as amended (ERISA), will compel companies across the financial services industries to reconsider whether and how they provide this essential service to retirement investors. If DOL persists with and asserts this interpretation in future enforcement cases, it seems inevitable that its position will eventually be tested in court, which absolutely is not the way such a consequential policy decision should be made. In the meantime, financial services providers will need to come to terms with DOL’s position and consider their alternatives for continuing to be of service to retirement investors while operating on an ERISA-compliant basis.
By way of background, ERISA reserves its most stringent standards of conduct for fiduciaries to ERISA plans as defined in section 3(21), including persons who provide investment advice for a fee. Fiduciaries are subject to a series of standards, including:
..Statutory care (prudent expert) and loyalty (sole interest and exclusive purpose) standards in section 404(a);
..Prohibited transaction rules in section 406(a) that, absent a prohibited transaction exemption (PTE), bar a fiduciary from dealing on behalf of the plan with specified “parties in interest” that might be in a position to abuse the plan; and
..A second set of prohibited transaction rules in section 406(b) that, absent a PTE, prohibit fiduciaries from self-dealing, acting with a conflicted interest or receiving third-party payments.
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