Close Coordination Expected Between New DOL Rule and SEC’s Reg BI

Such alignment would be consistent with what the Department of Labor leadership has been signaling for a number of years now.

News emerged late last week that the U.S. Department of Labor (DOL) has filed for review a draft regulation titled “Improving Investment Advice for Workers & Retirees Exemption” with the Office of Management and Budget (OMB).

The actual language of the proposed rule is not yet available, as it must first be analyzed by OMB, but sources are speculating that this proposal likely represents the DOL’s “new fiduciary rule,” and that the “exemption” referenced in the title of the rule will be related to the Regulation Best Interest (Reg BI) package currently being implemented by the U.S. Securities and Exchange Commission (SEC).

Speaking with PLANADVISER about this development, George Michael Gerstein, co-chair of the fiduciary governance group at Stradley Ronon Stevens & Young, says he indeed expects the forthcoming regulation to be closely coordinated with Reg BI, such that an entity’s compliance with Reg BI may very well make it exempt from the Employee Retirement Income Security Act (ERISA)’s fiduciary duties as policed by the DOL.

“That coordination would be consistent with what the DOL leadership has been signaling for a number of years now,” Gerstein says. “The DOL leadership under President [Donald] Trump has emphasized that they want the SEC to take the lead in terms of conflict of interest regulations, particularly when it comes to brokerage practices. It now seems likely that, if a broker/dealer [B/D] engages in actions that amount to providing investment advice under the Employee Retirement Income Security Act [ERISA], to the extent that the entity complies with Reg BI, that will be sufficient for meeting ERISA’s fiduciary duties.”

Of course, this outlook will remain speculative until such time as the actual rule text emerges from OMB. Even so, Gerstein says, one can be pretty confident of what is coming, simply based on the Trump administration’s demonstrated de-regulatory agenda.

“I think their idea is that firms have made a number of important changes for the purposes of complying with Reg BI, and so the administration wants them to be able to leverage those changes as much as possible,” Gerstein says.  

One thing he will be watching for is the new DOL rule’s treatment of rollovers and related advice. This could be an area where some distinctions are drawn with Reg BI. 

“That will be an interesting part of this discussion,” Gerstein says. “Clarifying the rules and responsibilities around rollovers has been an outstanding issue in the wake of the circuit court decision that overturned the Obama administration’s much more expansive fiduciary rule update. Overall, I see this as the DOL catching up on a project that has been hanging over it for some time. They clearly did not want to deal with the fiduciary reform issues in the midst of the SEC’s drafting of Reg BI. But, the time has come, and it seems clear the DOL is going to try to bootstrap its new regulation off of Reg BI.”