Fiduciary Rule Rewrite From Benefits Agency Clears White House

The rewrite of an Obama-era fiduciary rule has cleared White House Office of Management and Budget review.

The Improving Investment Advice for Workers and Retirees rule [RIN: 1210-ZA29] is expected to ease restrictions on financial advisers by reinstating the 1975 regulation from the Employee Retirement Income Security Act that defines fiduciaries.

The rule as proposed from the Employee Benefits Security Administration also contains a new prohibited transaction exemption to ERISA’s conflict-of-interest guidance. The exemption would allow investment advisers to receive compensation even if they provide “conflicted” investment advice—advice from those whose earnings depend on the actions taken by the client.

The final rule is expected to require, however, that investment advice must be provided in the best interests of the investor.

The fiduciary and prohibited transaction rule was first published July 7, and like the other rules proposed this summer, gave the public just 30 days to weigh in and suggest changes. The final rule, which has been under White House review since Nov. 24, was OK’d by the administration on Monday. It was one of three proposed this summer by the Department of Labor’s Employee Benefits Security Administration that affect fiduciary responsibilities and benefits plans focused on environmental, social, and corporate governance funds.

The rule replaces an Obama-era financial sector overhaul that would have elevated all financial professionals who work with retirement plans covered by the Employee Retirement Income Security Act of 1974 to the level of a fiduciary. It would have reshaped the role of brokers and insurance agents who work for commission on behalf of specific industries.

That rule, proposed in 2015, underwent significant delays before, in 2018, the Fifth Circuit Court of Appeals vacated it, 2-1. Because of the vacatur, the DOL had issued temporary enforcement policies regarding the definition of a fiduciary. The new rule reverts that definition back to language used when ERISA was signed into law.

OMB’s Office of Information and Regulatory Affairs reviews the legal justification and cost-benefit analysis of all significant federal regulations. It also vets them through other executive branch agencies for potential conflicts. Review times vary considerably among regulations, and can range from a few days to many months.