Web Content Viewer

The DOL fiduciary regulatory package

The Department of Labor (DOL) fiduciary regulatory package vastly changed the scope of activities that causes someone to become a fiduciary under the Employee Retirement Income Security Act (ERISA) of 1974, as amended.

Simply put, while the standards of ERISA fiduciary duties didn’t change, the line determining what activities can give rise to a fiduciary status by virtue of providing investment advice moved, making it easier to cross.

What’s the latest?

The Fifth Circuit Court of Appeals reversed the judgment of the district court in favor of the Department of Labor (DOL) and struck down, in its entirety, the DOL’s fiduciary regulatory package late on March 15, 2018.

The ruling invalidates all elements of the regulatory package, including the broadened definition of fiduciary investment advice, the changes made to prohibited transaction exemptions in existence prior to the regulatory package, and the Best Interest Contract Exemption.

What was the court’s reasoning in vacating the regulatory package?

The court found the DOL’s definition of fiduciary investment advice overly broad and inconsistent with ERISA.

Does this change how we interact with you, your plan sponsors and individual investors?

No. At least, not yet. Until the Fifth Circuit Court enters its order as final (which is expected could happen as early as May) the fiduciary regulatory package remains in effect. There could be additional court proceedings if the DOL seeks a rehearing or appeals the decision. For now, we’ll continue to operate in accordance with the DOL’s fiduciary regulatory package and the rules of engagement set forth by your broker-dealer.

When is this expected to be resolved?

It could be weeks before we know if the DOL will ask for a rehearing or appeal. If they do, the fiduciary regulatory package could remain in effect for the length of that process. If the DOL chooses not to seek a rehearing or appeal, the invalidation of the rule could be effective as early as May 7, 2018.

What’s next?

Talk to your broker-dealer (BD) or registered investment advisor (RIA) to confirm your fiduciary status and how this ruling impacts you and your relationship with your clients.

Want more info?

Check out the March 2018 Compliance newsletter.

What the new landscape looks like after June 9, 2017

Why should I care?

The DOL fiduciary regulatory package changed the definition of what activities related to providing investment advice constitute ERISA fiduciary status. The final regulatory package didn’t change what it means to be an ERISA fiduciary. Specifically, the duties of a fiduciary are considered the highest standard known to American law.

The ERISA fiduciary standard

The standard for ERISA fiduciaries is not changing – it’s already the highest standard known to American law.
    • Strict ERISA sec. 404 duties of loyalty and prudence.
You may not receive anything of value (direct or indirect compensation)
    • Unless you’re meeting a Prohibited Transactions Exemption (PTE).
If fiduciary duties are breached, the potential consequences include:
    • Personal liability
    • Disgorgement of profits plus self-reporting excise tax
    • Co-fiduciary liability

What defines you as a fiduciary under the new regulation?

Need more details? (PDF)

Applying the DOL fiduciary regulation to your practice

Getting paid when you’re an ERISA fiduciary

When you say you’re a fiduciary or you take any action defined as fiduciary, you’re prohibited from receiving anything of value for your services unless you meet a prohibited transaction exemption, most likely one of the three primary PTEs that were created or amended by the DOL regulatory package. And, you must ensure your compensation is reasonable for the services you’re providing.

Learn more about PTEs — as well as exceptions that may apply — in this short video...

Need more details? (PDF)

Mitigating your risk as a fiduciary and the Impartial Conduct Standards

As a fiduciary relying on the BICE or PTE 84-24 you must adhere to the rule’s Impartial Conduct Standards which were applicable on June 9, 2017. The most obvious thing is for you to continue to act in your clients’ best interests. In other words, your recommendations:

  • Must be made solely in the interest of the retirement investor you are working with.
  • Cannot be influenced in any way by your own interests.
  • Must reflect considerations that a prudent expert in the field would employ.

The Impartial Conducts Standards also call for you to ensure that your compensation is reasonable for the services being provided, and that you make no materially misleading statements.

Other things to do

Document, document, document
You'll need to be able to show what products/services you selected for your clients and how you arrived at that recommendation in case you’re challenged by a client or the courts. Your best defense may be documentation from the time of the decision.
Be transparent
You'll need to clearly explain to clients how and what you get paid, and document that conversation. And be sure to keep your documentation updated.
A third-party 3(21) or 3(38) fiduciary service provider
By leveraging a third-party expert in investment selection and asset allocation, you have a credible source with documented due diligence processes and monitoring. This can help mitigate you and your clients’ investment fiduciary risk. Check with your financial institution on guidelines.
Utilize a level commission or fee-based arrangement
If your compensation is level, regardless of the investment recommendation you make, there is less chance that a client can claim your advice was conflicted based on the compensation you received.

Need more details? (PDF)

Your business — our support

While the regulation causes change for all of us, it also brings opportunity. We make available a wide range of products and services, top-tier investment options, plan compliance resources and consulting services to help you and your clients manage risk in meeting retirement income objectives and, ultimately, build your value proposition for your clients. Here’s what you can expect from us:

Get more details for advisors (PDF) ... for plan sponsors (PDF).

Fiduciary support

Think of us as an extension of your team. We’re here to complement your business strategy. While we won’t provide fiduciary investment advice to retirement plan decision makers, we’ll do the following:

  • Provide robust investment support to fiduciary advisors and plan sponsors who are “independent fiduciaries”.
  • Offer investment education and information to plan fiduciaries.
  • Offer investment education services for plan participants.
  • Make available fiduciary advice services for plan participants who ask for this service at benefit event.
  • Continue to make available fiduciary advice services for plan sponsors of defined benefit and defined contribution plans.

Participant education and advice when it’s needed most

The fiduciary regulatory package changes the rules when it comes to investment education and advice for participants. But rest assured, our people and technology will deliver a personalized experience that helps participants make more informed decisions.

We’ll always provide education to a participant regarding their situation. But, if after receiving education, a participant isn’t sure what to do and wants additional help, we’ll be there for him or her. We’ll make available fiduciary advice for those participants who ask for advice about what to do with retirement assets in these situations:

  • Roll-ins: A participant has retirement assets held outside of the plan and they’re considering rolling those assets into the current plan.
  • Benefit event: A former participant has a benefit event (like retirement or termination) and needs to decide what to do with their retirement assets.

Here’s what this process looks like:

  • Step 1: Get to know the participant — We’ll complete a rigorous, repeatable and documented process for gathering key information. We’ll ask questions to understand the participant’s goals, preferences, investment objectives, risk tolerance and current financial situation.
  • Step 2: Make a recommendation — Once we know the participant’s goals and plan, one of our financial counselors documents this in an industry leading tool. From there, they’ll produce a recommendation to share with the participant.
  • Step 3: Facilitate a decision for the participant — Together, we’ll talk about the recommendation. If the participant likes what they see, we’ll help with fulfillment of the recommendation.

We complete regular internal quality reviews for our financial counselors providing advice. We’re checking for things like call quality (providing helpful information they may need to make an informed decision) and we’ll review supervisory elements.

Ongoing support

Yes, the rules are changing, but you’re not in this alone. We have a dedicated team who has a successful history of responding and adapting to significant regulatory changes and are thoroughly evaluating the rule and its impact. We’re using this experience to help you and your retirement plan clients.

Contact our Regulation Assistance team at 800-258-9041, option 22# or email regassistance@principal.com.


The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax or accounting obligations and requirements.

Principal Financial Advisors, Inc. is a registered investment adviser and member company of the Principal Financial Group®. Registration does not imply any specific level of skill or training.

Insurance products and plan administrative services are provided by Principal Life Insurance Co. Securities are offered through Principal Securities, Inc., 800-547-7754, member SIPC and/or independent broker/dealers. Principal Life and Principal Securities are members of the Principal Financial Group®, Des Moines, IA 50392.

Principal, Principal and symbol design, and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.

© 2017 Principal Financial Services, Inc., 711 High Street, Des Moines, Iowa 50392


313592-112017 – 11/2017

Small Banner Web Content Viewer