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Another Fiduciary Rule?

What the Department of Labor’s new proposal means for ordinary investors.

In early July the Department of Labor introduced another proposed fiduciary rule, replacing the one it finalized in 2016 that was soon thrown out by the 5th Circuit Court of Appeals. This now marks more than a decade of back-and-forth proposals and rules from the DOL and the SEC aiming to raise standards for advisors. This DOL proposal mostly aims to maintain the new status quo, but if DOL finalizes it as written, then there are some details investors and advisors need to know.

In addition to proposing a rule, the DOL also made two other significant changes to guidance and regulation that take immediate effect. An old “five-part” test--originally created in 1975--was restored to determine who is and is not a fiduciary under the Employee Retirement Income Security Act, or ERISA, which governs most private-sector tax-privileged retirement accounts. Though this is a dry topic, this test is at the heart of the ongoing fight over which financial professionals must put their clients’ needs first and which ones can act more as salespeople. The DOL also changed some key guidance on whether a rollover recommendation counts as investment advice--stating that it now counts and could be subject to the new fiduciary rules. Advisors and investors will want to pay close attention to the new rule and the restored five-part test.