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The Government’s Clash on Fiduciary Responsibilities and Your Advisor’s Retirement Advice

What Will Happen to the DOL Fiduciary Rule?

In October 2023, the Department of Labor (DOL) released its latest attempt at a fiduciary rule that would require brokers and advisors to offer retirement advice that is in the best interests of their clients. It isn’t the first time the DOL has drafted proposed regulations to protect investors, and it seems likely to end up with a fate similar to previous proposals. In March 2018, the 5th U.S. Circuit Court of Appeals in New Orleans vacated a similar fiduciary rule. Since then, as many as 20 states have proposed their own fiduciary standards as Republicans and Democrats continue to debate about the consequences of universal fiduciary responsibilities.

With the upcoming election and the state of retirement in America, we look at the current state of the fiduciary rule, its history, and its potential comeback in the national discourse.

What Did the DOL’s Original Fiduciary Rule Propose?

The DOL’s 2016 fiduciary rule would have set limits on the advice brokers can offer to retirement savers, requiring advisors to put their clients’ interests ahead of their own. However, a 2018 decision, Chamber of Commerce vs. U.S. Department of Labor, vacated the proposed DOL rule.

The 2016 measure was expected to save Americans billions of dollars in fees while driving pro-consumer reforms of the stock brokerage, mutual fund, and insurance industries.

The rule offered more protection to investors, since previously, brokers were only required to meet a vague standard that their recommendations be “suitable” for clients. Only U.S. Securities and Exchange Commission (SEC)-registered financial advisory firms had a fiduciary responsibility.

The new standard for financial brokers selling retirement products would have gone into effect in April 2017, and financial firms would have had until January 2018 to fully comply.

Scott Puritz, managing director of investment firm Rebalance IRA, who testified before the U.S. Senate the rule was being considered, called the Labor Department announcement “an extraordinary victory” for American consumers.

He said most American workers assume that their retirement advisor acts in their best interest, while the reality is that investment advisors may recommend the funds that pay them the largest commissions and fail to disclose a second level of fees charged by the mutual funds and shared with the advisor.

The new rule aimed to improve disclosures and cut conflicts of interest.

The proposed rule was based on a 2015 estimate from the Labor Department under the Obama Administration. The DOL estimated that consumers lose over $17 billion through excessive fees yearly, draining investment accounts of money needed for retirement.

Some advisors said the change could increase paperwork and limit options for savers, and some analysts noted that financial advisors would shy away from working with savers with small accounts if they thought it might lead to more regulatory scrutiny.

People saving through 401(k) plans would not have been affected since these are already guided by fiduciary rules.

The SEC and Regulation Best Interest

While the DOL failed to implement the fiduciary rule, the SEC came close with the Regulation Best Interest (Reg BI) under the Securities Exchange Act of 1934. While not an official fiduciary responsibility, Reg BI requires broker-dealers to follow a “‘best interest’ standard of conduct” when recommending any security or investment strategy to retail investors.

Reg BI was adopted in June 2019, and all firms were required to be in full compliance by June 30, 2020.

The 2019 regulation added protections for retail investors, but the scrutiny was expected to greatly alter how firms deal with compensation, as well as the retirement advice and retirement products that advisors recommend. Michael Sullivan, principal with KPMG in Washington, noted, “Some firms have completely removed certain share classes or entire product offerings to ensure compliance with Regulation Best Interest.”

Reg BI standards drew criticism from democrats Michael Bloomberg and Sen. Elizabeth Warren during the 2020 election cycle. Both publicly called Reg BI weak and favored the return of the DOL’s fiduciary rule, while Republicans were generally opposed to any increase in regulations.

Additional DOL Attempts Since 2020

In December 2020, the DOL adopted Prohibited Transaction Exemption (PTE) 2020-02, Improving Investment Advice for Workers & Retirees, replacing the vacated 2016 rule, again promoting the three standards of best interest, reasonable compensation and “no misleading statements about investment transactions and other relevant matters.”

In February 2022, two trade groups from Texas filed suit against the DOL, challenging the department’s authority in making the fiduciary rule. In a separate case, a Florida district court also partially overturned parts of PTE-2020-02.

The DOL issued a proposed amendment to PTE 2020-02 in October 2023, including a redefinition — and expansion — of the meaning of “investment advice fiduciary.” The framework of previous definitions involved a longstanding “five-part test,” with five criteria for determining when someone could be considered an investment advice fiduciary. This same framework is what many opponents of previous iterations of DOL rules rallied against.

As with every other version of the DOL fiduciary rule, the new proposal has drawn criticism from many in the financial industry, arguing that it will create higher compliance costs and sway many advisors out of the market. On the other hand, Brian Graff, CEO of the American Retirement Association, expressed support for portions of the proposal and was among those testifying at the Fiduciary Rule Hearing in December 2023

The Continued Debate on Fiduciary Responsibility

The DOL’s 60-day public comment period extends into January 2024. As noted in a recent Bloomberg Law article, Republicans continue to push back on any amendments to fiduciary rulemaking that increase regulation on advisors or the DOL’s authority.

The battle found its way into negotiations for the federal budget in November 2023, with House Republicans fighting to derail the fiduciary proposal by blocking the DOL from using any of its budget to advance it.

With nearly a decade of fiduciary rules and amendments failing to inspire agreement on both sides of the aisle, the latest DOL attempts seem destined to fail.

According to the Securities Industry and Financial Markets Association (SIMFA), the new proposal is “the sequel no one asked for or needs.” In the meantime, states are left to write their own laws on fiduciary responsibility.


We think you’ll also like:

  1. Beyond the Fringe: Alternative Asset Classes Go Mainstream
  2. Protection From Investment Fraud: Who’s Got Your Back? 
  3. America’s Retirement Crisis: Problems and Solutions

[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

  1. Goal-Based Investing — Planning for Key Life Events
  2. Basic Investment Principles 101 — From Asset Allocations to Zero Coupon Bonds 
  3. Crowdfunding from the Investor’s Perspective

This is an updated version of an article originally published on April 6, 2016, and revised on March 2, 2020.]

©2023. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.

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About Michele Schechter

Michele has been a director with Financial Poise since 2012. Share this page:

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