The Fifth Circuit recently vacated the US Department of Labor’s (“DOL”) 2016 fiduciary rule that had expanded ERISA’s fiduciary definition to those providing investment advice for a fee to an ERISA plan or its participants. In light of the Fifth Circuit’s decision, the DOL has issued a temporary enforcement policy halting the enforcement of certain prohibited transaction claims against investment advice fiduciaries. Under Field Assistance Bulletin 2018-02, the DOL indicated that it will not pursue prohibited transactions claims against investment advice fiduciaries who are “working diligently and in good faith” to comply with the impartial conduct standards from the vacated fiduciary rule.
Meanwhile, the US Securities and Exchange Commission (“SEC”) has proposed Regulation Best Interest that, if enacted, would establish a standard of care and disclosure requirements with certain similarities to the DOL’s vacated fiduciary rule. At a high level, the SEC’s proposed rule is intended to create consistent principles for different types of investment advice:
- provide clear disclosures,
- exercise due care, and
- address conflicts of interest.
Until the SEC’s Regulation Best Interest or other fiduciary regulation goes into effect, the FINRA “suitability” standard effectively fills the gap as the lowest standard. The suitability standard requires broker-dealers to provide recommendations that are suitable for the plan or participant’s specific situation, but it does not require the advice to be in the plan or participant’s best interest. By contrast, registered investment advisors will continue to be required to act as a fiduciary with recommendations that meet the plan or participant’s best interests.