On April 20, 2015, more than three years after withdrawing a similar proposal that was staunchly opposed by the financial services industry, the U.S. Department of Labor (DOL) published in the Federal Register a proposed regulation (the Proposed Regulation) that would establish a new framework for determining whether a person is a fiduciary with respect to an ERISA-covered employee benefit plan (a Plan) or an individual retirement account or similar tax-favored savings account (an IRA) as a result of providing investment advice for a fee or other compensation (an Investment Advice Fiduciary). The Proposed Regulation, if adopted, is expected to extend fiduciary status to many investment professionals, including broker-dealers, insurance agents, pension consultants and appraisal firms, that do not consider themselves to be fiduciaries under current law.
In addition, the DOL proposed granting two exemptions from the prohibited transaction rules under ERISA and the Internal Revenue Code. The first of these exemptions (the Best Interest Contract Exemption) would allow Investment Advice Fiduciaries in the retail market to receive commissions, 12b-1 fees and revenue sharing payments in connection with investments made by Plan and IRA clients as long as they acknowledge their fiduciary status and agree to comply with certain standards of conduct designed to ensure that their advice is in the best interest of such clients. The second exemption (the Principal Transactions Exemption) would, subject to certain conditions, permit an Investment Advice Fiduciary to engage in purchases and sales of certain debt securities, as principal, with Plans and IRAs. The DOL also proposed amendments to several existing exemptions covering a range of transactions with Investment Advice Fiduciaries.
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