It was just about one year ago that we used the "Insights from Winston & Strawn" to brief you on the Department of Labor's proposed regulation redefining the term "fiduciary" under ERISA. FS Update V. 5, Issue No. 39. The proposal would have expanded the scope of the definition of fiduciary with significant consequences for those in the financial services industry that provide services to employee benefit plans governed by ERISA. The intervening year has seen an extraordinary industry outcry concerning the proposal's consequences, with more than 260 written public comments, two days of public hearings, and more than three dozen individual meetings between the Employee Benefit Security Administration (EBSA) and interested parties.

For most of the year, EBSA stood firm in its resolve to issue a final rule and resisted calls to withdraw its proposal. Last month, however, public criticism broadened and intensified to the point where EBSA determined it needed to re-propose the rule, agreeing with its critics that additional public input and research would strengthen the rule. EBSA News Release.

The key areas of concern for the financial services industry included, among others: (1) the possibility of discrepancies between the proposed rule and the SEC's and CFTC's rulemaking activities required under the Dodd-Frank Act, (2) potential unintended consequences for various brokerage relationships if brokers were deemed to be providing investment advice (and thus qualifying as fiduciaries) under the proposed rule, and (3) the potential adverse consequences of having those who provide valuation services treated as fiduciaries.

EBSA indicated in its press release announcing the re-proposal of the rule that it will address these points, as well as others. In particular, EBSA announced that it plans to continue to work with the SEC and CFTC towards harmonizing the re-proposed rule with the commissions' respective Dodd-Frank rulemaking activities. EBSA also intends to clarify the type of advice that qualifies as "fiduciary advice," as well as the extent of the rule's application to arms-length commercial transactions (the so-called "seller's exemption") and address the many concerns raised regarding the impact on broker and adviser fee practices.

The re-proposed rule is expected to be released in the early part of 2012. Of course, the details on the re-proposed rule remain to be seen, and it will be interesting to see how the comments and concerns of the financial services industry are manifested in the new proposal. While this issue has certainly not gone away, it may have provided some welcome "breathing room" for financial services providers already challenged to address the rapidly changing landscape created by the Dodd-Frank rules. We'll keep you posted on developments in this area and, in the meantime, please do not hesitate to reach out to your Winston & Strawn contact with questions.