The Department of Labor’s (DOL) new definition of fiduciary investment advice for retirement investors becomes effective September 23, 2024. Under the new rule, more brokers, advisors, and insurance agents will be held to an ERISA fiduciary standard when providing individualized recommendations to retirement plan participants and IRA investors, including one-time rollover or distribution advice. Not all recommendations and communications made to retirement investors will trigger fiduciary status though.
To trigger functional fiduciary status for a specific recommendation, a financial professional must meet all these requirements:
- The advice giver is (directly or indirectly through or with an affiliate) in the business of making professional investment recommendations
- The recommendation is personalized based on the retirement investor’s particular needs or individual circumstances (recommendation includes a call to action)
- A reasonable investor in like circumstances would believe the recommendation is based on the investor’s best interests
- The financial professional (or an affiliate) receives compensation in connection with the recommendation
If the facts and circumstances surrounding a recommendation do not meet these requirements, the recommendation will not be subject to the fiduciary rule.
Communications That Are Not Fiduciary Advice
The DOL’s preamble and final regulations identify certain types of communications that generally do not fit the definition of fiduciary investment advice, so long as the financial professional has not acknowledged fiduciary status and does not make a personalized recommendation to the retirement investor.
- “Hire me” communications touting the advisor’s services and other information about their (or an affiliates’) services
- A sales pitch that includes a recommendation to purchase a particular investment or pursue a particular strategy (e.g., “You’ll love the return on X stock in your retirement plan, let me tell you about it.”)
- Investment education and information on retirement savings
- Offering or marketing of a platform with a set line-up of investments (e.g., an IRA product)
- Service provider call center communications involving investment-related information
Investment Education or Information Defined
The DOL defined “education” vs. advice in 1996 (Interpretive Bulletin (IB) 96-1) and has confirmed in the 2024 final rule that those interpretations still apply.1 This is the case irrespective of who provides the information (e.g., plan sponsor, fiduciary, or service provider), the frequency with which the information is shared, and the form in which the information is provided (e.g., on an individual or group basis, in writing or orally, or via video or computer software). In an interview with American Retirement Association’s Brian Graff, Tim Hauser, the deputy assistant secretary for program operations of the Employee Benefits Security Administration, stated that the DOL is not trying to “move any of those lines” with the new rule.2
Based on IB 96-1 and current DOL guidance, the following types of information may be provided to retirement savers without triggering ERISA Title I or Title II fiduciary status, so long as a personalized recommendation is not made.
| Investment or Plan/IRA Information |
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| General financial, investment & retirement information |
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| Asset allocation models |
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| Interactive investment materials |
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Next Time
Some advisors and service providers may choose to limit their product and rollover communications to educational services. If they refrain from making recommendations that meet all aspects of the new definition of fiduciary advice, they would not be subject to the DOL’s fiduciary rule for providing this information.
If financial professionals make recommendations to retirement investors that meet the DOL’s definition of fiduciary investment advice, compensation for that advice is prohibited unless they satisfy the conditions of Prohibited Transaction Exemption (PTE) 2020-02 (or PTE 84-24 for independent insurance agents).
Stay tuned for IRALOGIX’s next article on how those who provide rollover recommendations subject to the DOL fiduciary rule can structure their services to comply with PTE 2020-02, satisfy the fiduciary standards, mitigate conflicts of interests, and receive compensation that would otherwise be prohibited (because the compensation would not have been paid but for the recommendation).
1 Interpretive Bulletin 96-1, June 11, 1996, https://www.federalregister.gov/documents/1996/06/11/96-14093/interpretive-bulletin-96-1-participant-investment-education
2 “Tim Hauser – the Final Fiduciary Rule’s Myths and Controversies,” DC Pension Geeks podcast, May 13, 2024, The American Retirement Association, https://www.napa-net.org/dc-pension-geeks-podcast