The U.S. Department of Labor (DOL) has issued the final version of its “investment advice” regulation (Final Rule), which is widely expected to impact significantly the financial services industry, including registered investment companies (funds) and their sponsors and intermediaries. The implications of the Final Rule have been emerging since its release, as the fund industry has studied its terms and considered its application to current distribution structures. The Final Rule expands the definition of “fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA).
For a comprehensive overview of the Final Rule, please refer to Dechert's May OnPoint, which provides an in-depth discussion of: (i) the basic structure of the Final Rule and “Best Interest Contract” Exemption (BIC Exemption); (ii) the definition of “recommendation” under the Final Rule; (iii) the activities excluded from this definition; (iv) the widespread impact of the Final Rule; and (v) the effective date of the Final Rule and certain grandfathering relief.
This OnPoint addresses the potential impact of the Final Rule on the most common fund distribution channels, including: (i) direct sales; (ii) unaffiliated broker-dealers; (iii) affiliated broker-dealers; and (iv) 401(k) plans and other defined contribution retirement plans. Significantly, the Final Rule expressly applies to advice regarding the rollover of 401(k) distributions from 401(k) plans and individual retirement accounts (IRAs) and extends to fiduciary conduct regarding IRAs themselves. This analysis is not intended to provide a complete summary of the Final Rule and, therefore, should be read in conjunction with Dechert’s comprehensive OnPoint. Also, today, Dechert is contemporaneously publishing an OnPoint on the Final Rules from the perspective of broker-dealers and their registered representatives that provide investment advisory services.
It is anticipated that the DOL will provide guidance in the form of FAQs this summer, and that such guidance will shed further light on the anticipated trends discussed herein.