Under the proposal, which was unveiled Oct. 31 and includes prohibited transaction amendments, the department calls for changing its fiduciary definition by removing three prongs in the five-part test, which was established in 1975 and is used to determine when a financial professional is considered an investment advice fiduciary under the Employee Retirement Income Security Act.
The three prongs at issue require that the person providing the advice does so on a regular basis; the advice is pursuant to a mutual understanding; and that the advice will serve as a primary basis for decision making.
Instead, the department proposes that a person should be considered an investment advice fiduciary under ERISA if they provide investment advice or make an investment recommendation to a retirement investor, such as to a plan participant or the plan itself; the advice or recommendation is provided "for a fee or other compensation, direct or indirect"; and if the recommendation is made in at least one of several contexts.
The changes would lead one-time advice, such as rollovers to individual retirement accounts or annuity purchases, to fall under the fiduciary definition if the other parts of the test are met.
During the public comment period and at a public hearing in December, industry firms, trade groups and lawmakers called on the department to withdraw the proposal. Among their concerns, opponents say the proposed fiduciary definition is too broad, the proposal is a rehash of a 2016 rule that was vacated in court, and that there are already sufficient regulations covering the marketplace, like the Securities and Exchange Commission's Regulation Best Interest and the National Association of Insurance Commissioners' conduct standards for insurance agents and insurance companies recommending annuities.
Gomez said the department is trying to "create a level playing field among the financial adviser professional community to make sure that everyone is adhering to the same rules," and to better protect investors deciding when and how to rollover their retirement nest egg.
"To think that in one fell swoop they can work with someone and take some action that's going to adversely affect all that hard work is something that we're trying to protect them against," Gomez said.
Consumer groups have welcomed the proposal in public comments and said a tougher standard is needed to shield retirement savers from conflicts of interest among financial advisers.
As far as timing of a final rule, Gomez said she couldn't provide a specific time frame, but did say she's fully aware of the time crunch EBSA and other federal regulators are under with the presidential election looming in November.
"This is a real priority for not only EBSA, but the department (and) the administration to move forward with this," Gomez said. "It's an issue that deserves clarification and a clear path to move forward, so we are trying to move forward as soon as possible."
