DOL proposal starts where Reg BI stops

investmentnews.com:

An investment advice proposal recently released by the Department of Labor picks up where Regulation Best Interest leaves off — a point criticized by opponents and celebrated by supporters.  

Under the DOL’s retirement security rule proposal, most financial advice to retirement savers – including one-time recommendations on rolling assets from a company plan over to an individual retirement account — would be held to a fiduciary standard if the investor is working with a “trusted advisor,” regardless of whether it’s an investment advisor, broker or insurance professional.

The proposal is designed to curb advisor conflicts of interest that lead to “junk fees” that are eroding Americans’ nest eggs, the Biden administration asserts.

If the DOL promulgates a final rule sometime next year, it would join Reg BI — the Securities and Exchange Commission’s broker standard that went into force in June 2020 — in the regulatory landscape.

Reg BI prohibits brokers from putting their revenue interests ahead of their customers’ interests for strong investment returns. But it is not legally a fiduciary standard. Investment advisors continue to have fiduciary status under SEC regulation.

The DOL rule would hold brokers advising retirement accounts to the fiduciary standard imposed by federal retirement law, the Employee Retirement Income Security Act. Brokers would have to give advice that is in the investor’s best interests, avoid misleading statements and charge reasonable fees, among other requirements.

That prospect is raising concerns among opponents of the DOL rule.

“Essentially, any broker-dealer [adhering to] Reg BI will find themselves ensnared in ERISA fiduciary status,” Jason Berkowitz, chief legal and regulatory affairs