The Fiduciary Role in the Post-DOL Fiduciary Rule Era

In 2016, the United States Department of Labor published a new regulation commonly called the Fiduciary Rule. Also known as the Conflict of Interest Rule, the regulation was intended to expand the definition of investment advice fiduciary under ERISA to include additional professionals associated with finance. However, in March 2018, the Fifth Circuit Court of Appeals heard a case brought by the U. S. Chamber of Commerce and others that challenged the rule. In a 2-1 decision, the court struck down the fiduciary rule, stating that the rule was “an arbitrary and capricious exercise of administrative power. The lead up to the decision, and the decision itself, may have left many wondering about fiduciaries and the role they play under ERISA and IRS regulations.

Fiduciary Standard vs. Suitability Standard

A ‘fiduciary’ is someone with the authority to act for another individual “under circumstances which require a total trust, good faith and honesty.” Many financial advisors already serve as fiduciaries. Under the new rule, all financial professionals working with retirement plans under ERISA would have become fiduciaries.

The DOL’s Fiduciary Rule would have affected many brokers and agents working on commission. These individuals are held to a suitability standard instead of a fiduciary standard, which requires a much higher level of accountability.

In a nutshell, a non-fiduciary financial adviser’s suggested course of action only needs to be suitable for the client. However, advisers with fiduciary responsibilities must put the best interests of the client above their own interests.

Since the Fiduciary Rule is not going to be enforced, where does this leave fiduciaries?

Going Forward

The implications of the Fifth Circuit decision mean that a fiduciary’s role remains the same: fiduciaries still have authority and obligation to act for beneficiaries “under circumstances which require a total trust, good faith and honesty.” Advisors who currently are not fiduciaries will not be held to the higher standard, at least under federal law.

However, standards may be changing at the state level.

The State of New Jersey is considering fiduciary regulation that would affect brokers and registered investment advisers. If implemented, brokers would be held to the same fiduciary standard already followed by registered investment advisers.

In fact, several other states have also proposed or are considering fiduciary laws or regulations, including Nevada, Connecticut, Maryland, Illinois, and New York.

Understanding the Fiduciary Role Can Be Difficult

It’s important to know ERISA and IRS regulations regarding retirement plans, whether you are an investment advice fiduciary or you plan to work with one.

At Hall Benefits Law, we work extensively with fiduciary issues and employee benefit plan legal compliance, both before and after plans are established. Please call 678-439-6236 to discuss your concerns with an experienced attorney. Our website contains more information about our firm, a Contact Form, and free resources for your review. From our home office in Georgia, we assist clients throughout the United States, from New York to New Mexico to California.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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