The Department of Labor has announced the final fiduciary rule, set to go into effect on September 23, 2024. The rule aims to protect the interests of retirement savers by redefining the investment advice fiduciary under ERISA and the Internal Revenue Code. The final rule, available on the DOL website, requires advisors to provide prudent, loyal, and honest advice free from overcharges and ensures that financial institutions enforce policies to manage conflicts of interest.
The rule updates the definition of fiduciary duty to cover cases where financial services providers offer paid investment advice to retirement plan participants, IRA owners, and plan officials. Registered Investment Advisers have historically been held to a fiduciary standard, making the new rule largely redundant for them. However, brokers will now be held to a more stringent fiduciary standard, aligning their responsibilities more closely with RIAs.
The new rule aims to prevent advisors from prioritizing their interests over their clients’, broadening the types of advice covered and introducing a “trust and confidence” standard. It also closes the gap in Regulation Best Interest, ensuring uniform application of fiduciary responsibilities across all forms of investment advice related to retirement plans. This change subjects advisors to stringent ERISA enforcement provisions, potentially leading to class-action lawsuits for non-compliance with fiduciary standards.
Acting Labor Secretary Julie Su emphasized the importance of protecting retirement investors from improper recommendations and conflicts of interest. The Biden-Harris administration’s analysis shows that conflicted advice can cost savers billions each year, highlighting the need for the new rule. By aligning regulations with the current retirement and investment landscape, the rule aims to foster fair competition and provide workers with the tools to make well-informed decisions for their retirement savings.
The updated fiduciary rule signifies a significant development in protecting retirement savers’ interests, establishing higher standards for investment advisors and mitigating conflicts of interest. By aligning regulations with contemporary retirement and investment landscapes, the rule aims to foster fair competition and provide workers with the tools to make impartial, well-informed decisions for their retirement savings. The rule recognizes the changing investment landscape and aims to ensure that workers can reach a secure retirement.
