DOL Issues Final Rule on Definition of an Investment Advice Fiduciary

Published April 24, 2024

The Department of Labor's (DOL) Employee Benefits Security Administration (EBSA) released the final retirement security rule that updates the definition of an investment advice fiduciary under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC). The DOL also released final amendments to class prohibited transaction exemptions (PTEs) available to investment advice fiduciaries.

The final rule requires that a financial services provider will be an investment advice fiduciary under federal pension law if:

  • the provider makes an investment recommendation to a retirement investor;
  • the recommendation is provided for a fee or other compensation, such as commissions; and
  • the financial services provider holds itself out as a trusted adviser by specifically stating that it is acting as a fiduciary under Title I or II of ERISA; or
  • making the recommendation in a way that would indicate to a reasonable investor that it is acting as a trusted adviser making individualized recommendations based on the investor's best interest.

In addition, the final rule closes the loophole for one-time advice. A financial services provider will be a fiduciary with respect to a recommendation to roll over assets from a workplace retirement plan to an IRA if every element of the fiduciary definition is satisfied.

Prohibited Transaction Exemptions

In addition to the final rule, the DOL finalized amendments to several existing PTEs to ensure all retirement investors receive the same quality investment advice, regardless of the product or service they receive. There are two administrative exemptions available for the management of conflicts of interest with respect to advice.

  • PTE 2020-02 is broadly available for advice with respect to the wide universe of investments recommended to retirement investors.
  • PTE 84-24 is tailored for use by independent insurance agents and is intended to facilitate their ability to make best interest recommendations under their business model.

The Department also finalized amendments to several existing administrative exemptions that provide relief for certain transactions. The amendments remove fiduciary investment advice transactions from the covered transactions in each exemption and make other administrative changes.

As a result of these amendments, all investment advice fiduciaries will be held to the same conduct standards in administrative exemptions, because they will have to rely on PTE 2020-02 or PTE 84-24 to receive compensation that otherwise would be prohibited.

The final rule goes into effect September 23, 2024, although there is a one-year transition period after the effective date for certain conditions in the PTEs.

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