Retirement Security Rule: Definition of an Investment Advice Fiduciary

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The Department of Labor's Employee Benefits Security Administration has issued a final rule to protect workers' retirement savings by updating the regulation defining a fiduciary under the Employee Retirement Income Security Act (ERISA).

The "Retirement Security Rule: Definition of an Investment Advice Fiduciary" affects how investors get advice on their job-based retirement accounts and other retirement savings plans and how trusted investment advice providers must act if they have a conflict of interest.

What does the Retirement Security Rule do?

Previously, many people who gave investment advice and got paid for it were not considered investment advice fiduciaries under ERISA. Investment advice fiduciaries legally must follow strict rules of conduct.

The final rule and related amendments to prohibited transaction exemptions (PTEs) detail when advice providers are acting in a fiduciary role under federal pension laws and explain the conditions they must follow to protect retirement investors.

Investment advice fiduciaries must:

  • give advice that is prudent and loyal.
  • avoid misleading statements about conflicts of interest, fees, and investments.
  • follow policies and procedures designed to ensure the advice given is in an investor's best interest.
  • charge no more than is reasonable for their services.
  • give investors basic information about any conflicts of interest.

Why did EBSA make these changes?

EBSA's mission is to protect the job-based retirement, health and other welfare plan benefits of America's workers and their families. Requiring trusted investment advice providers to comply with fiduciary standards protects retirement investors from harmful conflicts of interest. Conflicts of interest can put an investment advice provider in the position of choosing between what's good for them and what's best for you. That could result in excess fees and/or lost investment returns that reduce a person's retirement savings.

The previous definition was from 1975 and didn't work in today's marketplace. Investors who are making decisions for their retirement accounts expect advice to be in their best interest — so, it should be.

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