Final regulations: Fiduciary standard for retirement investment advice

Fiduciary standard for retirement investment advice

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.

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Read text of the 58-page final regulations [PDF 606 KB]

Summary

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. 

Read a fact sheet prepared by the Labor Department about the final regulations and a chart examining the differences between the proposed and final regulations.

KPMG observation

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.

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