DOL’s rule would add a lot of fiduciaries into the mix

investmentnews.com:

Advisors who make one-off recommendations to 401(k) plans and participants may face a new reality under the latest fiduciary rule proposed by the Department of Labor: They will be fiduciaries, whether they like it or not.

Tuesday, the agency proposed a rule that would again redefine “fiduciary” under the Employee Retirement Income Security Act. It also proposed amendments to several prohibited transaction exemptions, which could have far-reaching consequences for IRA rollovers and the products that advisors and brokers suggest.

A pillar of the proposed rule is making virtually anyone who recommends investments to a 401(k) plan a fiduciary, which the Biden administration said is necessary to close a loophole in the Securities and Exchange Commission’s Regulation Best Interest.

“Advice to plan sponsors fall outside of Reg BI, because plan sponsors are not retail investors,” said Jason Roberts, CEO of the Pension Resource Institute.

That has meant that in some cases 401(k) plans receive investment advice that is conflicted, with brokers making one-time recommendations for products that give them hefty commissions. Generally, that’s something that affects very small retirement plans, as larger, most established plans work with RIAs that serve in a fiduciary capacity. The effect of conflicted investment advice recommendations in small retirement plans was a theme that the White House noted in its announcement of the proposed rule, which is the latest effort of the administration to attack “junk fees” in various industries.

Given that the proposed rule and prohibited transaction amendments total about 800 pages of text, there are nuances and consequences that may not be clear for days or even weeks.

It’s important to note that