The Labor Department today released for publication in the Federal Register a package of regulations that includes final regulations affecting the investment advice standard imposed on retirement investment advisers. The new rules impose a fiduciary duty on persons providing retirement investment advice. A variety of amendments were made to the Labor Department’s “prohibited transaction exemptions” to align with these final regulations.
Read text of the 58-page final regulations [PDF 606 KB]
As explained in a related list of FAQs or “frequently asked questions,” ERISA and the Internal Revenue Code broadly define fiduciaries to include persons who give investment advice for a fee, regardless of whether that fee is paid directly by the customer or by a third party (for example, a firm that compensates the adviser for steering customers to one of its investment products).
Accordingly, the final regulations are intended to protect retirement savings and provide that more retirement advisers are treated as fiduciaries. As such, these advisers will be required to put their clients' best interest first. The final regulations close existing loopholes and expand the types of retirement advice subject to fiduciary protections, but distinguish activities that are not advice—for example, education—and include exemptions to provide fiduciary advisers flexibility to continue many common fee and compensation practices provided that protections are so that the advice is in clients' best interest.
With these final regulations, it has been observed that the old “suitable” standard is being replaced with something that requires more care in what is being offered as investment advice. These changes may, over time, result in a shift of fees relating to IRAs from commissions to flat fees.
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.