The Department of Labor's Employee Benefits Security Administration has issued a final rule to protect workers' retirement savings by updating the regulation defining an investment advice fiduciary under the Employee Retirement Income Security Act (ERISA).
You play a key role in helping retirement investors save for their future. These investors trust you to make sense of a complex market and its often-confusing range of products. They also expect your advice to be in their best interest — so, it should be.
Who does this apply to?
Persons and financial institutions who make investment recommendations to retirement investors, as explained below. (When am I a fiduciary?)
When does this take effect?
The new definition of “fiduciary” will apply starting September 23, 2024, though additional requirements will kick in 1 year after that.
Are there prohibited transaction exemptions?
Yes. The Department also amended existing prohibited transaction exemptions so that fiduciaries can receive a wide variety of compensation for providing investment advice if they mitigate conflicts of interest and meet certain conditions.
What does this rule do?
Changes the definition of an “investment advice fiduciary” to create a uniform best interest standard and level the playing field for advice providers.
Why did EBSA make this rule?
To protect retirement investors from harmful conflicts of interest and bring the definition of a fiduciary in line with today’s reality.
What do I need to do?
Satisfy the exemptions’ protective conditions, including by ensuring that your advice is prudent, loyal, honest, and free from overcharges.
Common questions
When am I a fiduciary?
If you hold yourself out as a trusted investment advice provider and make investment recommendations to a retirement investor for a fee or other compensation, you are a fiduciary with respect to those recommendations.
| You are a fiduciary if you ... | ||
|---|---|---|
| give a recommendation for a fee or other compensation to one of the following: | AND | do one of the following: |
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| |
What do I have to do if I am a fiduciary investment advice provider?
Investment recommendations must be driven by the best interest of the retirement investor, rather than the advice provider’s conflicts of interest. When advice providers’ compensation varies with their recommendations, they must comply with the protective conditions of one of two prohibited transaction exemptions that were issued with the final rule.
One exemption, PTE 2020-02, is broadly available to investment professionals and firms regardless of the product recommended. The other, PTE 84-24, is specially tailored for independent insurance agents.
Regardless of the exemption, the advice must be prudent, loyal, honest, and free from overcharges.
What do I have to do as a financial institution?
A financial institution overseeing fiduciary investment advice providers must have policies and procedures in place to manage conflicts of interest and ensure that they and the individuals who work for them are giving advice that is prudent, loyal, honest, and free from overcharges, as set forth in PTE 2020-02 or PTE 84-24.
What advice is covered under this rule?
Covered investment advice includes:
- recommendations to purchase, sell, hold, or exchange plan or IRA investments;
- recommendations on investment management (including proxy voting, selection of persons to provide investment advice or management services, and investment account arrangements); and
- rollover advice
What isn't covered under this rule?
Investment education, such as basic plan information and general financial and investment information, that does not include an investment recommendation. The full text outlining the categories of investment-related information and materials is available on EBSA’s website.
Can I still get a commission?
Yes. The rule allows for a wide range of compensation structures, including commissions, as long as the advice provider complies with the prohibited transaction exemption conditions.
What are the prohibited transaction exemption conditions?
To operate under one of the available exemptions, an investment advice fiduciary must:
- give advice that is prudent and loyal.
- charge no more than is reasonable for their services.
- 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.
- carefully manage their conflicts of interest and give investors basic information about them.
What do I do if I have more questions about the final rule?
Read more about the Retirement Security Rule.
You can also contact us at 1-866-444-3272 or dol.gov/AskEBSA.