DOL Proposal Puts Workers First for Retirement Investment Advice

The explosive growth in 401(k)-type plans and IRAs means that workers are increasingly contributing to and managing their own retirement savings.  While this increased control provides retirement savers with greater flexibility, there is also potential for abuse. In response to this concern, the Department's proposal requires advisors to base their investment recommendations, including recommendations to roll assets out of 401(k) plans, on the best interests of workers — and not on the best interests of the advisor.

Under the Department's new exemption, investment professionals would be required to tell their retirement investor customers that they are acting as fiduciaries when making investment recommendations, so that all parties are clear about the nature of their relationship. And, as fiduciaries, advisors would have to adhere to Impartial Conduct Standards.

These include the requirement that investment advice be in the participant's best interest; a reasonable compensation standard that requires execution of a customer's trades at the most favorable terms reasonably available; and a prohibition on misleading statements about investment transactions or other relevant matters.

These protections are consistent with the requirements of other regulators such as the Securities and Exchange Commission, and like their standards, are derived from fiduciary principles. In support of these Impartial Conduct Standards, the Department's proposal would also require disclosure and efforts to mitigate any conflicts of interest when providing investment advice to plans and participant investors.

This may not be the first time you've heard of a Labor Department fiduciary rule. The Obama administration's 2016 rule resulted in many participants being left without access to affordable financial advice.

At that time, the House and Senate voted to block the rule from taking effect; but President Barack Obama vetoed the joint resolution. The rule was ultimately vacated by a federal court.

The Department's recent proposal avoids problems created by the 2016 rule while providing much-needed protections for retirement savers and appropriate access to investment advice options.

The Depression-era bank robber Willie Sutton, who escaped from prison three times and amassed a small fortune, reportedly was once asked why he robbed banks. Sutton replied, "Because that's where the money is."

With nearly $18 trillion in defined contribution plans and IRAs in 2019, retirement savings are where the money is. The Department's proposal will ensure that the high standards expected of a fiduciary — a designation that has held significance since the time of the Romans — are carried through the 21st century.

Patrick Pizzella is the deputy secretary of the U.S. Labor Department.