On September 19, 2011, the Employee Benefits Security Administration of the U.S. Department of Labor (“DOL”) announced that it would withdraw a proposed rule that would have expanded the definition of “investment advice” for purposes of fiduciary liability under the Employee Retirement Income Security Act (“ERISA”). The proposed rule would have amended a DOL regulation dating back to 1975 to define a fiduciary as anyone who gives investment advice to plans for a fee or other compensation. The proposed rule had been heavily criticized for its potential costs and sweeping reach, drawing over 260 written comments.
The DOL plans to re-propose a modified version of the rule in early 2012. The DOL has suggested that, among other things, the modified rule is expected to
- Clarify that fiduciary advice is limited to individualized advice directed to specific parties, and does not apply to routine appraisals;
- Clarify the limits of the rule’s application to arm’s length commercial transactions, such as swap transactions;
- Add exemptions to address industry concerns about the impact on current fee practices of brokers and advisers; and
- Clarify that long-standing exemptions that allow brokers to receive commissions in connection with transactions in mutual funds, stocks and insurance products would continue.
The DOL has confirmed that it is committed to establishing a new fiduciary standard and has indicated that it will take the time necessary to “get this right.”