DOL v. Investment Advisor Fiduciaries: Round 2

Chris Allesee

In 2010, the Department of Labor issued proposed regulations that sought to expand the definition of a fiduciary to cover more individuals that provide investment advice to benefit plans and participants. The industry outcry was so fierce that the DOL withdrew the proposed regulations in 2011. Since then, the DOL hunkered down in its corner, nursed its wounds, strategized with its trainer (the SEC), and waited for the bell…which finally rang on Tuesday, as the DOL stepped back into the ring with a fresh set of proposed regulations.

The new regulations still propose to expand the definition of a fiduciary to include any individual that provides investment advice for a fee to a plan, a participant, or an IRA holder, with a few exceptions. However, the DOL has sweetened the deal with a few new prohibited transaction exemptions. The most intriguing is a proposed “best interest” contract exemption, which allows an investment advisor to continue setting its own compensation if it contractually agrees to act in its client’s best interest and disclose all conflicts of interest.

Whether the proposed regulations will receive a warmer welcome than the 2010 regulations has yet to be seen. My gut says the DOL may take a few hard punches in round 2, but has too much on the line to back down a second time. Stay tuned for updates, and if the DOL can stay on its feet, a breakdown of how the final regulations may affect your plan.