DOL Adopts "Retirement Security Rule"

The Department of Labor adopted a final rule which extends the definition of "investment advice" under the Employee Retirement Income Security Act ("ERISA") to include any financial services professionals who are paid for advice they give to retirement plan participants, individual retirement account owners and plan officials responsible for administering plans and managing their assets.

A financial services provider will be an investment advice fiduciary under federal pension law if:

• the provider makes an investment recommendation to a retirement investor;
• the recommendation is provided for a fee or other compensation, such as commissions; and
• the financial services provider holds itself out as a trusted adviser by
  • specifically stating that it is acting as a fiduciary under Title I or II of ERISA; or
  • making the recommendation in a way that would indicate to a reasonable investor that it is acting as a trusted adviser making individualized recommendations based on the investor's best interest.

Under the final rule, advisers are required to:

• meet a professional standard of care when making recommendations (give prudent advice);
• never put their financial interests ahead of the retirement investor's when making recommendations (give loyal advice);
• avoid misleading statements about conflicts of interest, fees, and investments;
• charge no more than what is reasonable for their services; and
• give the retirement investor basic information about the adviser's conflicts of interest.

This rule becomes effective 150 days after publication in the Federal Register.

In a statement, SIFMA said "[a]s proposed, the rule conflicted with existing federal securities regulation – specifically Regulation Best Interest – and would likely limit investors’ access to advice and education. Stakeholders have been quite explicit on the need to address these conflicts and we will be reviewing the conflict-related text as well as other relevant text on the material flaws we raised in our comments."