Trump Moves to Ease Retirement Advice Rules for Financial Firms (1)

June 29, 2020, 10:03 PMUpdated: June 29, 2020, 10:34 PM

Financial professionals who advise plan participants about retirement account investments will have more latitude to make money off those deals once a new proposal from the Trump administration is finalized.

The proposed exemption issued Monday spells out the Employee Benefits Security Administration’s latest take on whose financial security most needs protecting—retirement account holders or the industry professionals they turn to for guidance.

It dovetails with the Securities and Exchange Commission’s best interest rule requiring broker-dealers to disclose potential conflicts of interests to retail investors. The U.S. Court of Appeals for the Second Circuit upheld the SEC rule June 26. It goes into effect Tuesday.

The U.S. Court of Appeals for the Fifth Circuit vacated a more restrictive Obama-era regulation in March 2018. Current Labor Secretary Eugene Scalia helped the U.S. Chamber of Commerce gut the prior administration’s rule.

With the prior rule dashed, the latest EBSA’s proposal would reinstate the 1975 regulation for fiduciaries in the Employee Retirement Income Security Act of 1974. “The proposal would allow investment advice fiduciaries to give more choices for retirement using Impartial Conduct Standards,” the department said. That standard requires that investment advisers receive “reasonable compensation,” refrain from offering “misleading advice,” and suffer disqualification (up to 10 years) for criminal convictions.

It would apply these conditions to an expanded class of financial professionals to qualify for relief from otherwise prohibited transactions. The expanded class includes investment advisers, broker-dealers, banks, and annuity-selling insurance companies.

“The proposed exemption would authorize a wide range of investment advice models and relationships, consistent with the fundamental goal of ensuring that workers and retirees receive investment advice that is in their best interest,” acting EBSA director Jeanne Wilson said in a release.

Rollovers Included

The proposed exemption also would cover transactions that roll over funds from ERISA-shielded plans to privately controlled individual retirement accounts (IRAs), an emerging market the department says accounted for $2.4 trillion in shifting assets from 2016-2020. Advisers who stand to collect commissions or profit off transaction-based fees from the rollover deals are currently prohibited from doing so.

The new guidance would “provide relief, as needed, for this prohibited transaction, if the Financial Institution and Investment Professional provide investment advice that satisfies the Impartial Conduct Standards,” the department said.

Senior Labor officials told reporters earlier in the day that the biggest difference between this rewrite and Obama’s failed attempt is that Trump “is not changing the definition of fiduciary.” Earlier criticism of the Obama rule said it inappropriately expanded the duties of a retirement plan fiduciary.

SEC chairman Jay Clayton commended Labor officials for lining up with his earlier efforts. “I look forward to continuing our work with the Department so that collectively we can enhance investor choice and increase investor protections,” he said in a statement.

The guidance is open for public comment for 30 days and will go into effect 60 days after it officially publishes in the Federal Register.

(Updates with additional detail starting in the seventh paragraph.)

To contact the reporter on this story: Warren Rojas in Washington at wrojas@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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