The DOL’s fiduciary regulation was scheduled to become effective this September 23. The exemptions were scheduled to become partially effective this September 23 and fully effective September 23, 2025.

Two Federal district courts—one in the Eastern District of Texas and the other in the Northern District—have stayed the effective dates. That means that the new rules will not be effective until the courts have decided on the validity of the regulation and exemptions and, most likely, until the appeals are exhausted one way or the other.

As a result, the current fiduciary regulation, with its 5-part test, will continue in effect pending the final resolution of the lawsuits. In the same vein, the current PTEs 84-24 and 2020-02 will continue in effect until a final decision is reached on the validity of the amended PTEs.

My first article in this “mini” series, Fiduciary Rule 41, covered the court stays; the second article, Fiduciary Rule 42, discussed the similarities between SEC and SEC Staff guidance on rollover recommendations and the DOL’s conditions in PTE 2020-02; the third talked about the differences between the SEC Staff Bulletin (SEC.gov | Staff Bulletin: Standards of Conduct for Broker-Dealers and Investment Advisers Account Recommendations for Retail Investors) and the DOL’s conditions in PTE 2020-02 regarding rollover recommendations. This article covers additional guidance in the SEC Staff Bulletin.

• • The SEC Staff views the best interest standard of conduct for broker-dealers and the fiduciary standard for investment advisers as producing substantially similar, if not identical, results: “Both Regulation Best Interest (“Reg BI”) for broker-dealers and the fiduciary standard for investment advisers under the Investment Advisers Act (the “IA fiduciary standard”) are drawn from key fiduciary principles that include an obligation to act in the retail investor’s best interest and not to place their own interests ahead of the investor’s interest. Although the specific application of Reg BI and the IA fiduciary standard may differ in some respects and be triggered at different times, in the staff’s view, they generally yield substantially similar results in terms of the ultimate responsibilities owed to retail investors.” [The bolding is mine.]

Comment: The process described in Q&A 4 of the Bulletin for evaluating and recommending a rollover to an IRA is the same for broker-dealers and investment advisers. For that purpose, the SEC Staff expects the same information gathering and evaluation for both broker-dealers and investment advisers.

• The Bulletin mentions IRAs three times:
  • With regard to a compliant best interest process, the Bulletin notes: “To evaluate any recommendation to transfer assets out of an employer’s plan, or between individual retirement accounts, you would need to obtain information about the existing plan, including the costs associated with the options available in the investor’s current plan.”
  • With regard to conflicts of interests, the Bulletin suggests, as a practice to help firms meet their obligations, that the firms “Implement supervisory procedures to monitor recommendations that involve the roll over or transfer of assets from one type of account to another (such as recommendations to roll over or transfer assets in an ERISA account to an IRA).”
  • With regard to recommendations to rollover from plans to IRAs, footnote 21 of the Bulletin points out: “For example, the Commission has cautioned broker-dealers not to rely on an IRA having “more investment options” as the basis for recommending a rollover.”

Comment: If there was any doubt, the Staff Bulletin makes clear that a recommendation to transfer an IRA is subject to a best interest process for broker-dealers and investment advisers, as well as being a conflict of interest.

• The Bulletin treats individual retirement accounts and 401(k) accounts as “account types” subject to the respective standards of conduct for broker-dealers and investment advisers. In addition to the factors for evaluating a rollover from a plan to an IRA, the Bulletin says this about account type recommendations (which would apply, for example, to recommendations to transfer an IRA):

“In order to establish a reasonable understanding of the characteristics of a particular type of account, the staff believes that you should consider, without limitation, factors such as the services and products provided in the account (including ancillary services provided in conjunction with an account type, account monitoring services, etc.); the projected costs to the retail investor; alternative account types available; and whether the account offers the services requested by the retail investor. The staff believes that in assessing whether a particular account recommendation is in a retail investor’s best interest, a financial professional also should consider whether these factors are consistent with the retail investor’s investment profile and stated investment goals.”

Comment: The account type factors are similar to those in the DOL’s PTE 2020-02. To point out one such factor, the Staff Bulletin says, “projected costs,” rather than just costs. In other words, the analysis requires consideration of the cumulative effect of higher (or lower) costs over the investor’s time horizon.

Concluding Thoughts

The DOL and SEC have come into alignment on their views about the factors to be considered in best interest “account type” recommendations. While this article is based primarily on a Bulletin by the SEC Staff, the Bulletin is, by and large, an extension of SEC guidance, and particularly of Reg BI. As a result, much of the work done to comply with the DOL’s stayed fiduciary regulation and exemptions are consistent with the requirements and risk management in SEC guidance.

While the court stays of the DOL’s regulation and exemptions benefits the insurance industry, the effect will be less pronounced for the securities industry. However, to a degree the SEC Reg BI and RIA Interpretation, and SEC Staff Bulletin, will impact annuity recommendations, since variable annuities and registered index-linked annuities (RILAs) are securities products.