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The New Fiduciary Rule (4): A Relationship of Trust and Confidence

The US Department of Labor has released its package of proposed changes to the regulation defining nondiscretionary fiduciary advice and to the exemptions for conflicts and compensation for investment recommendations to retirement plans, participants (including rollovers), and IRAs.

Key Takeaways

    • The Department of Labor’s proposed fiduciary “package” includes a new definition of nondiscretionary fiduciary investment advice.
    • In overturning the Obama-era fiduciary regulation, the 5th Circuit Court of Appeals said that the DOL’s definition of nondiscretionary fiduciary advice failed to define a relationship of “trust and confidence”. In the view of the court, fiduciary status only applied to financial recommendations made by an advisor who had a relationship of trust and confidence with an investor.
    • In drafting the new proposed fiduciary regulation, the Department of Labor considered that holding and made an effort to define nondiscretionary advice in a manner consistent with a trust and confidence standard.

This article discusses the DOL’s proposed definition of nondiscretionary advice and the comments in the preamble about relationships of trust and confidence.

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