Posted on June 30, 2020

Aligns with SEC and NAIC Best Interest Rules

WASHINGTON, D.C. – The U.S. Department of Labor (DOL) issued a new proposal aimed at improving investment advice provided to workers and retirees. The measure includes a best interest standard intended to align with a broader investment advice regulation issued by the U.S. Securities and Exchange Commission (SEC) that takes effect today, as well as a complementary model regulation for annuity sales adopted earlier this year by the National Association of Insurance Commissioners (NAIC).

The Insured Retirement Institute (IRI) is studying the DOL proposal, which has three primary components. First and foremost, the proposal would establish a new prohibited transaction exemption (PTE) for investment advice fiduciaries who, among other things, meet a best interest standard and a reasonable compensation standard. Second, the DOL is officially reinstating the “five-part test” for fiduciary status and other guidance that had been modified by the prior administration’s 2016 rule, which was vacated by the 5th Circuit Court of Appeals in 2018. Lastly, the proposal clarifies the circumstances under which fiduciary status would be triggered by advice to roll over retirement savings from a 401(k) or other employment-based plan to an individual retirement account (IRA).

“We are reviewing the Department of Labor proposal to determine its full ramifications but some initial signs are encouraging that it will align with both the SEC’s Regulation Best Interest, which takes effect today, and the enhanced NAIC model regulation” said Jason Berkowitz, IRI Chief Legal and Regulatory Affairs Officer. “Close alignment of these important standard of conduct rules for financial professionals will avoid confusion, enhance consumer protections and establish clear regulatory guidance.”

By establishing a best interest standard that aligns with Reg BI and the NAIC model regulation, the DOL will create a more harmonized state and federal regulatory framework.

“Once we fully evaluate the DOL’s new proposal with our members, we will participate in the public comment process to provide input and suggestions,” Berkowitz said. “We appreciate the thought and consideration that the Department has made in drafting this proposal and look forward to sharing our members’ views with them.”

Stakeholders will have 30 days to file comments from the time the proposed rule appears in the Federal Register, which is expected shortly.

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Contact: Dan Zielinski