The fiduciary Rule Battles Continue!
Written by: Lance Reising
It has been a while since we last wrote about the Fiduciary Rule, Part 2, re-proposed by the Department of Labor. Following the strike-down by a Circuit Court of the first Fiduciary Rule during the Obama administration, the DOL reconstructed this newer rule to address the issues originally raised by the Court.
It has resurfaced in the news again recently because The DOL has now appealed to the Fifth District Court for a reversal of the ruling in July by the U.S. District Court for Eastern Texas which temporarily suspended the planned implementation of the revised Fiduciary Rule on September 23, 2024.
Given these stays, the roles and requirements of fiduciaries reverts back to previous rulings from many years ago.
Understanding the Fiduciary Rule: Why is it Important?
The original rule aimed to ensure that financial advisors act in the best interests of their clients when dealing with retirement accounts, such as IRAs and 401(k)s. The goal was to safeguard plan sponsors and investors from potential conflicts of interest by raising the standard of care owed by advisors, especially in the realm of retirement planning.
For plan sponsors and investors, the Fiduciary Rule would offer critical protections, ensuring that the advice they receive is not influenced by an advisor's potential commissions or other incentives.
So where are we now?
Though court stays are in place and may not be overturned, there are ways based on the older rulings where a plan fiduciary may still be found to be out of compliance, particularly when it comes to dealing with rollovers by a plan participant.
Therefore, plan sponsors and investors should ask their advisors directly if they adhere to a fiduciary standard, (like we do), especially when making retirement-related investment decisions, either for their organization’s retirement plan or for themselves. Plan sponsors should work with advisors who agree in writing to serve in a fiduciary capacity. (Many of the large plan service providers do not, and will not. This leaves you, as plan sponsor, with all the fiduciary liability).
Conclusion
The future of the Fiduciary Rule remains uncertain, especially as it continues to face legal challenges. For plan sponsors and investors, understanding the standards under which their advisors operate is essential to making informed and compliant financial decisions.
The materials contained herein are for informational purposes only and are not a substitute for professional advice.