The U.S. Department of Labor (DOL) on Tuesday released final regulations (RIN 1210-AC02) that will subject the financial services industry to new requirements designed to protect retirement investors from receiving bad or self-interested investment advice.
“This rule protects the retirement investors from improper investment recommendations and harmful conflicts of interest,” DOL Acting Secretary Julie Su said in a news release.
The new regulations, known as the “retirement security rule,” will go into effect Sept. 23, but court challenges are anticipated. In 2016, when DOL finalized a somewhat similar fiduciary rule, the Fifth Circuit struck it down.
The AICPA had recommended in a comment letter that the DOL’s new rules protecting retirement investors follow the AICPA Statement on Standards in Personal Financial Planning Services, which is part of the AICPA’s Code of Professional Conduct, but that approach was not adopted.
Broader definition of who is a fiduciary
The DOL’s new rule widens the situations in which a financial services provider qualifies as an “investment advice fiduciary” for purposes of the Employee Retirement Income Security Act (ERISA) and thus owes duties of prudence and loyalty to retirement investors.
Under the final rule, a person is an investment advice fiduciary if they make an investment recommendation to a retirement investor for a fee or other compensation and either:
- Make investment recommendations to investors on a regular basis as part of their business, and the recommendation is provided under circumstances indicating that it is based on the retirement investor’s individual circumstances and may be relied upon as being in their best interest; or
- State that they are acting as a fiduciary.
This definition is somewhat narrower than the one contained in the Oct. 31, 2023, proposed regulations. Most other changes made in the final regulations were relatively minor.
Impact on CPA financial planners
DOL Deputy Assistant Secretary Timothy Hauser explained to the JofA in January that some CPA financial planners may be subject to new requirements when they deal with retirement investors.
“This is not the regulation of CPAs per se,” Hauser said. But “if the person really regularly makes investment recommendations, and if they do it in circumstances that indicate they’re acting in the customer’s best interest, they would have some additional obligations.”
— Dave Strausfeld, J.D., is a JofA senior editor. To comment on this article or to suggest an idea for another article, contact him at David.Strausfeld@aicpa-cima.com.
