Tag Archives: regulation

The New Fiduciary Rule (25): Robo Advice and Robo Conflicts


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In November 2023, the U.S. Department of Labor released its package of proposed changes to the regulation defining fiduciary advice and to the exemptions for conflicts and compensation for investment recommendations to retirement plans, participants (including rollovers), and IRAs (including transfers). On March 8, 2024, the DOL sent the final rule to the Office of Management and Budget in the White House.

Key Takeaways

  • The DOL’s proposals make it clear that robo advice, both “hybrid” and “pure”, can be fiduciary advice, subject to the provisions of ERISA and the Internal Revenue Code.
  • When pure robo advice (no human directly involved) or hybrid robo advice is given, if it satisfies the regulatory definition of fiduciary advice, the financial institution will be a fiduciary under ERISA (if to an ERISA plan or a participant in such a plan) and subject to ERISA’s duties of prudence and loyalty.
  • If robo advice generates a fiduciary recommendation that is conflicted, the conflicted amount (e.g., commissions, management fees) will be a prohibited transaction under ERISA and the Code, which would necessitate compliance with the conditions of a prohibited transaction exemption (PTE).
  • This article discusses robo advice under PTE 2020-02.

Under the current PTE 2020-02, the exemptive relief is not extended to “pure” robo-advisers. Instead, only “hybrid” robo-advisers can provide nondiscretionary fiduciary advice to retirement investors where the advice is conflicted (e.g., proprietary investments, revenue sharing, commissions). However, when the proposed amendments to the PTE become final and applicable, compensation resulting from conflicted nondiscretionary advice will be permitted if the conditions of the exemption are satisfied.

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The New Fiduciary Rule (14): The Timeline for the Final Regulation and Exemptions


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The U.S. Department of Labor has released its package of proposed changes to the regulation defining 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” expands the scope of fiduciary status (to include, e.g., one-time recommendations) and the types of transactions that are covered by fiduciary advice.
  • That is particularly important since, where the fiduciary recommendation involves a conflict of interest (e.g., a new fee or a commission), the firms and their representatives and agents will need to satisfy the conditions of either PTE 84-24 or PTE 2020-02.
  • The comment period for the proposed regulation and exemptions is over. The DOL now starts the process for finalizing the guidance and determining the effective date.

The DOL published its proposed fiduciary regulation and prohibited transaction exemptions in the Federal Register on November 3, 2023. That was the beginning of a process that will end with the final rules and their effective and applicability dates.

The “effective” date is the day on which the guidance becomes final as a regulation or exemption. The “applicability” date is the day on which the new rules must be complied with. The proposals said that the effective date and the applicability date would be the same. However, that may not be the case with the final rules.

This article is my best guess about the timing of the process to complete the DOL’s work.

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The New Fiduciary Rule (7): Non-Discretionary Investment Advice


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

Key Takeaways

  • The Department of Labor’s proposed regulation defining fiduciary investment and insurance advice to private sector retirement plans, participants in those plans, and IRA owners (collectively, “retirement investors”) includes three distinct definitions.
  • Those definitions are discretionary investment management, non-discretionary investment advice, and acknowledgement of fiduciary status.
  • The most controversial of these proposals is the new definition of non-discretionary investment advice. If an investment adviser, broker-dealer, or insurance agent (“investment professional”) satisfies that definition, the investment professional will be a fiduciary under ERISA and the Internal Revenue Code.

This post discusses the “non-discretionary” definition of fiduciary investment advice in the DOL’s proposed fiduciary regulation. The other two definitions of fiduciary status are covered by my posts The New Fiduciary Rule (5) and The New Fiduciary Rule (6).

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The New Fiduciary Rule (6): The Fiduciary Definition of Fiduciary


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

Key Takeaways

  • The Department of Labor’s proposed regulation defining fiduciary investment and insurance/annuity advice to private sector retirement plans, participants in those plans, and IRA owners (collectively, “retirement investors”) includes three distinct definitions.
  • Those definitions are: discretionary investment management, non-discretionary investment advice, and acknowledgement of fiduciary status. In each of those cases, the person and the firm will be fiduciaries under ERISA and the Internal Revenue Code for purposes of their investment recommendations and services to retirement investors.
  • A new definition in the proposal, and one that is not likely to be controversial, is the third one….a person will be a fiduciary for investment recommendations if that person says that the person and/or the firm are acting as fiduciaries for the recommendation.

This post discusses the “fiduciary acknowledgement” definition of fiduciary investment advice in the DOL’s proposed fiduciary regulation. More specifically, the proposed regulation says that a person will be an ERISA and Code fiduciary if “The person making the recommendation represents or acknowledges that they are acting as a fiduciary when making investment recommendations.” (There will be future articles discussing “investment recommendations”, but for the moment, consider it to be a recommendation for a retirement investor to invest in securities, insurance or other property.)

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


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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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The New Fiduciary Rule (3): Fixed Indexed Annuities


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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

    • Statements from the White House indicate that the DOL and the White House are concerned that fixed indexed annuities may be inappropriately sold to participants and IRA owners (“retirement investors”) in connection with recommendations to roll over benefits from plans and to transfer money from IRAs. Some of the political rhetoric accompanying the release of the proposals was unusually harsh.
    • The reaction from the insurance industry and state insurance commissioners has been immediate and strong.
    • If the proposals become final as written, the greatest impact of the changes will likely be on insurance agents, particularly independent producers.
    • The greatest impact on products will likely be on fixed indexed annuities.
    • This and several following articles will cover the impact on independent insurance agents, insurance companies, and annuities.

This article discusses the DOL’s thoughts on prudent processes for evaluating fixed indexed annuities, which dates back to the Obama-era Best Interest Contract Exemption (which was vacated in 2018 by the 5th Circuit of Appeals).

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The New Fiduciary Rule (2): The Impact


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

Key Takeaways

  • The Department of Labor’s proposed fiduciary “package” will have different impacts on different types of service providers to retirement plans, participants, and IRA owners (collectively, “retirement investors”) . . . .investment advisers, broker-dealers, banks and trust companies, and insurance agents (and companies) (“financial professionals”).
  • The greatest impact of the changes, if finalized as is, will be on insurance agents, particularly independent producers. Insurance companies issuing the life insurance policies and annuity contracts will also see increased compliance burdens.
  • For all of the types of financial professionals, the most impactful change will likely be that one-time investment recommendations to private sector retirement plans and their participants, and to IRA owners, will be fiduciary advice. That includes rollover recommendations.

This post discusses the likely impact of the new proposals. Future posts will go into more detail about the proposals and compliance issues:

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The New Fiduciary Rule (1): An Overview


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

Key Takeaways

  • One time investment recommendations to qualified and ERISA retirement plans and their participants, and to IRA owners, can be fiduciary advice. Plans, participants and IRA owners are referred to as “retirement investors”.
  • A rollover recommendation is one-time advice that will result in fiduciary status.
  • Fiduciary recommendations that result in compensation to a securities adviser (that is, to an investment adviser or broker-dealer) or to an insurance agent will be prohibited conflicts of interest, necessitating satisfaction of the conditions in a prohibited transaction exemption.

This blog post is an overview of the new proposals. Follow up posts will go into detail on each of the proposals.

The proposed fiduciary regulation—called the “Retirement Security Rule”–defines fiduciary advice as follows:

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The DOL’s Regulatory Agenda and a New Fiduciary Rule


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UPDATE: On August 8, I posted this blog article in contemplation of the DOL sending a new fiduciary proposal package to the Office of Management & Budget (OMB) in the White House. One month later, to the day, the receipt of the DOL’s proposed fiduciary rule and prohibited transactions was posted on the OMB’s website. In reviewing my blog article, I think it was spot on in predicting key elements of the fiduciary rule and the exemptions. However, that is still based on my crystal ball, since the changes new proposals won’t be known until they are vetted by the OMB and published in the Federal Register—probably 45 to 60 days from now. As this article suggests, the fiduciary proposal will likely say that rollover recommendations are fiduciary advice and that rollover recommendations to annuities will be subject to more stringent standards.

Key Takeaways

  • The anticipated DOL proposed fiduciary regulation could be sent to the Office of Management & Budget (OMB) in a matter of weeks.
  • The proposal will likely say that a rollover recommendation to a participant in an ERISA governed retirement plan is a fiduciary act.
  • The DOL will also likely propose amendments to prohibited transaction exemptions (PTEs), including to PTE 84-24, the exemption used for fiduciary rollover recommendations into individual annuity contracts.

The DOL has not appealed the decision in the Florida Federal District Court that vacated its fiduciary “re-interpretation.” That re-interpretation, in effect, said that ongoing investment advice to a rollover IRA could be connected to the rollover recommendation to a participant such that the “regular basis” prong of the 5-part fiduciary test would be satisfied. For context, the DOL had previously said that, if a person was not already a fiduciary to a plan, a recommendation to a participant to rollover his or her benefits was a standalone recommendation and therefore did not satisfy the regular basis prong of the 5-part test.

The re-interpretation tried to connect the recommendation to the plan (that is, for the participant to rollover to an IRA) to subsequent investment advice to the rollover IRA and, in that way, to conclude that the rollover recommendation was part of a regular basis advice arrangement. However, the Court held that the “regular basis” test is applied separately to the plan and the IRA and advice to the two could not be connected.

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Rollovers, Regulation, Litigation: Where Are We and What’s Next?


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Key Takeaways

  • The recent decisions on the DOL’s interpretation of fiduciary status are significant but limited in scope. Fiduciary status for plan-to-IRA rollover recommendations, standing alone, has been vacated. But other important transactions, such as IRA transfers, have not.
  • Also, where an advisor is a fiduciary to a plan or participant, and then recommends a rollover, the DOL will likely take the position that the rollover recommendation is a fiduciary act, necessitating the use of PTE 2020-02.
  • In addition, the SEC’s guidance on rollover recommendations by investment advisers and broker-dealers is closely aligned with the DOL’s, particularly on the best interest process, and the relevant plan information, needed to engage in a best interest process.

Let’s take a break from my SECURE 2.0 series of articles to discuss what is going on with the DOL’s fiduciary rule.

The Past

As background, in the preamble to Prohibited Transaction Exemption (PTE) 2020-02, the DOL re-interpreted the 5-part test in its regulation defining fiduciary status for nondiscretionary investment advice. The most significant part of the reinterpretation was the DOL position that recommendations to participants to take distributions from their retirement plans and to rollover to IRAs could be connected to subsequent investment advice to the rollover IRAs to satisfy the “regular basis” prong of the 5-part test.

Under that theory most rollover recommendations would be fiduciary recommendations, which in turn would require satisfaction of the conditions in PTE 2020-02 to obtain relief from the resulting prohibited transaction. (The prohibited transaction is the receipt of compensation from the rollover IRA.)  Among other things, the PTE requires a best interest process that includes comparison of the investments, expenses and services in the plan and the IRA, in light of the needs and circumstances of the participant.

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