DOL Fiduciary Duty Rule

In 2010, the Department of Labor (DOL) proposed a rule to amend the Employee Retirement Income Security Act of 1974 (ERISA). The rule governs ERISA’s definition of when a person providing investment information or advice becomes a fiduciary—that is, when they’re required to act in an investor’s best interest.

Members of Congress from both parties and others, including ICI, raised concerns at the time that the expanded fiduciary definition as proposed would harm American workers’ ability to obtain the guidance, products, and services they need to adequately prepare for their retirements through retirement plans and individual retirement accounts (IRAs).

Shortly thereafter, in the face of this widespread criticism, the DOL took the unusual step of withdrawing the rule.

In April 2015, the DOL released an updated proposal to change the definition of a “fiduciary” under ERISA, which would have expanded the universe of service providers considered fiduciaries by offering investment advice to a retirement plan, plan participant, or IRA owner.

ICI supported the principle at the heart of the DOL’s proposal—that financial advisers should act in the best interests of their clients when they offer personalized investment advice. However, ICI believes that any DOL rule must be workable; it should be designed to preserve investor choice and access to information and advice; and it should not favor certain products over others. Specifically:

• The proposal would have restricted the ability of investors to get the basic information they need to make informed investment choices—for example, by leaving key terms ambiguous and by revising current law to restrict the type of investment education that can be provided without triggering fiduciary status.
• The “best-interest contract exemption” issued with the proposal contained a host of unrealistic conditions, including a signed written contract requirement, waiver provisions that promoted class-action lawsuits, and non-implementable and over-burdensome point-of-sale requirements.
• The proposal would have been inordinately costly to implement.
• The questions about a “high-quality, low-cost” exemption were hopelessly vague. The DOL made no attempt to explain its view of criteria that made an investment “high quality.” It also appeared that the DOL might have been contemplating preferential treatment for certain low-fee investment products, which contradicted its previous stance that cost is not, and cannot be, the sole factor in choosing investments.

The public comment period for the DOL’s proposed rule included two rounds of formal comments and four days of public hearings from July to September 2015. ICI’s statements—including an overview of ICI’s concerns with the approach that the DOL has taken in the proposed rulemaking, comments on the fiduciary definition, comments on the proposed “best-interest contract” exemption, and a review of the proposal’s regulatory impact analysis—can be found in the “Comments, Testimony, and Statements” section of this resource center.

On April 6, 2016, the DOL released its final rule redefining the definition of a fiduciary under ERISA. The rule was lengthy and complex. To help members better understand and implement the rule, ICI convened a forum of industry leaders and stakeholders on May 10, 2016, in Washington, DC. Highlights from the event are available.

Part of the rule became applicable on June 9, 2017, after the DOL issued a 60-day delay of the applicability date. ICI engaged in a variety of efforts to assist members with implementation of the rule, and sought a delay of the January 1, 2018, applicability date for the remaining elements of the fiduciary rulemaking to provide needed certainty and reduce harm to investors.

The United States Court of Appeals for the Fifth Circuit issued a decision on March 15, 2018, to vacate the fiduciary rule in a 2-to-1 decision. The court certified its decision on June 21, 2018, which effectively nullified the rule in its entirety.

• ICI Data
• Rule Implementation