It’s ‘Back to the Future’ for the DOL’s Fiduciary Definition

Jun 15, 2018

The US Department of Labor (DOL) has decided not to appeal the Fifth Circuit Court’s decision to vacate the department’s fiduciary advice rule. As a result, the rule will be vacated once the court issues its mandate, which was expected by mid-May but was still pending as of early June.

Once the rule is vacated, the DOL’s prior definition of fiduciary advice will be reinstated. Under that definition (which became part of ERISA in 1975), a five-part test determines whether an individual providing investment advice is in fact acting as a fiduciary—and therefore subject to fiduciary standards.

The five-part test

Under the soon-to-be-reinstituted ERISA rules, advisors take on fiduciary status when the investment advice they offer to a recipient (i.e., a plan fiduciary or plan participant) meets all these conditions:

The advisor...

  1. provides investment recommendations for a fee, whether the fee is direct or indirect,

  2. on a regular basis (one-time advice generally isn’t considered fiduciary advice),

  3. pursuant to a mutual understanding,

  4. that the recommendation will be a primary basis for making the underlying investment decision,

  5. and, that the recommendation will be individualized.

For now, the DOL’s relief policy still applies

As we await the Fifth Circuit’s mandate—and the official restoration of previous fiduciary rules—the temporary enforcement relief policy communicated in the DOL’s Field Assistance Bulletins 2017-02 and 2018-02 remains in effect.

To quote from the more recent Bulletin 2018-02, the DOL “will not pursue claims against investment advice fiduciaries who are working diligently and in good faith to comply with the impartial conduct standards for transactions that would have been exempted under the BIC Exemption and Principal Transactions Exemption, or treat such fiduciaries as violating the applicable prohibited transaction rules,” even following the Fifth Circuit’s mandate to vacate those exemptions.

Elsewhere in Bulletin 2018-02, the DOL expresses its understanding “that financial institutions, advisers, and retirement investors may have questions regarding the investment advice fiduciary definition and related exemptive relief following the court’s order” and its intention to “provide appropriate guidance in the future.”

The content of this page is for general information only and is believed to be accurate and reliable as of posting date but may subject to change. John Hancock does not provide investment, tax, plan design, or legal advice. Please consult your own independent advisor as to any investment, tax, or legal statements made herein.

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These articles are not an edorsement of any particular product, service or orginization; nor are they intended to provide financial, tax or legal advice. They are intended to promote awareness and are for educational purposes only.