#FIDUCIARY STANDARD ACCOUNTS UPDATE#

In 2016, the Labor Department issued a replacement for the five-part test: a new fiduciary rule that would have offered different and narrower exemptions. Investor protection advocates have argued that too many advisors and brokers have evaded being held to a fiduciary standard because the five-part test had too many loopholes.

#FIDUCIARY STANDARD ACCOUNTS UPDATE#

The new rules are the culmination of yearslong efforts that started when the Labor Department under President Obama attempted to update a regulatory regime established under the Employee Retirement Income Security Act of 1974, also known as Erisa.įor decades, advisors were held to a fiduciary standard if they met a five-part test: Do they make investment recommendations? Do they do so on a regular basis? Are those recommendations based on a mutual agreement or understanding with the plan or IRA investor? Is the advice provided a primary basis for investment decisions? And, is the advice based on the particular needs of the investor’s plan or IRA? An advisor or broker who can answer in the affirmative for all those conditions, and receives compensation, direct or indirect, is considered a fiduciary.

“We believe that the Department of Labor has more work to do to make sure that if someone is operating as a fiduciary, all the actors are operating on a level playing field and that consumers get the protection they believe they are getting when they receive advice,” says Ali Khawar, acting assistant secretary for the Labor Department’s Employee Benefits Security Administration. The department is planning to propose additional rules later this year that will bring the regulatory framework more in line with guidance issued by the Biden administration. “There’s more sensitivity by regulators-the Labor Department specifically-and investors at large about rollover recommendations,” says George Michael Gerstein, an attorney and fiduciary governance group co-chair at law firm Stradley Ronon Stevens & Young. Rolling over assets from a plan to an IRA has become a priority for the Department of Labor because of the rising number of retirees, surging growth in IRA assets, and a regulatory framework that dates to the 1970s. United States Department of Labor building in Washington DC

Fiduciary standard accounts