DOL Sends Fiduciary Rule Update to OMB | Chief Investment Officer

The Department of Labor (DOL) on Tuesday sent its most recent version of the fiduciary rule to the Office of Management and Budget (OMB) for final review.

Called the “Improving Investment Advice for Workers & Retirees Exemption,” the dispatch is the latest in a decade-long struggle to amend the fiduciary standard for investment professionals that started in 2010.

In June, the DOL said in a proposal that investment fiduciaries who service workplace retirement accounts under the Employee Retirement Income Security Act (ERISA) can collect fees on investment advice for third-party payments such as rollovers if they act in their clients’ best interest.

The exemption applied broadly to registered investment advisers (RIAs), but also to broker/dealers (B/Ds), banks, and insurance companies, which are typically exempt from acting as fiduciaries.

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The proposed fiduciary standard is not as expansive as the DOL rule passed by the Obama administration, which required all investment professionals to act in their clients’ best interest, and was struck down in court two years ago by the Trump administration.

“We’re left with something like two-thirds or three-quarters of the Obama rule,” George Michael Gerstein, co-chair of the fiduciary governance group at law firm Stradley Ronon, told CIO.

The “middle-of-the-way” proposal sent this week to the OMB could satisfy enough industry professionals who are fatigued by the protracted volleying back and forth of the fiduciary standard, Gerstein said.

“We think there is a strong interest in some stability,” Gerstein added.

Gerstein says he expects the OMB will conduct a quick review of the proposal. But where the fiduciary rule will go after Inauguration Day will depend on who the Biden administration appoints as the new DOL secretary, and whether the candidate is cleared by Congress.

Another stipulation in the final fiduciary rule package, which has already been reinstated, is the return to a “five-part test,” which determines that a fiduciary is any professional that gives investment advice. This test existed before the Obama administration.