The U.S. Department of Labor Issues Final Fiduciary Rule on Giving Investment Advice on Employee Benefit Plans

The U.S. Department of Labor (the “DOL”) finally published its rule requiring that investment advisers act as fiduciaries (and not just determine that an investment is “suitable”) when providing recommendations on investment of funds in “plans”, such as 401k and other plans under the Employee Retirement Income Security Act of 1974 (“ERISA”), and non-ERISA plans such as self employment plans and Individual Retirement Accounts.  The DOL expanded the definition of fiduciary (“covered investment advice”), but carved out some specific types of advice including certain general communications and education, normal course transactions that are specified by the client and platforms that do not give advice.  Advisers can continue to receive commission-based remuneration only under the Best Interest Contract Exemption (the”BICE”) requiring that they enter into an agreement with the client meeting certain requirements.  They must also comply with the Impartial Conduct Standards:  on giving advice, they must act in the best interest of the client, they must make no materially misleading statements and they must charge a “reasonable” commission.  The rule goes into effect in April 2017, but there is a transition period to January 2018. Compliance for large entities is not anticipated to be overwhelmingly difficult, but smaller entities may find the burden – such as the paperwork and the possible litigation – to be heavy.  See the final rule and the DOL Fact Sheet.