Capital Group Policy Spotlight
The final fiduciary rule has a very broad definition of investment advice. Many financial professionals will be thought of as ERISA fiduciaries for the first time when the rule goes into effect. Almost any investment-related recommendation given to a retirement plan participant or sponsor, or to an IRA owner, will become fiduciary advice.
Jason Bortz: The final rule has a really broad definition of what is going to be considered investment advice under ERISA. Many financial professionals who’ve never been thought of as ERISA fiduciaries are now going to trip that wire. Almost any investment-related recommendation given to an IRA owner, or a retirement plan participant or a retirement plan sponsor is going to be fiduciary advice. The biggest category that’s going to get picked up are registered representatives of broker-dealer firms who historically haven’t been fiduciaries at all.
How does the rule make this happen? It really creates a brand new definition of fiduciary advice and it’s a really easy bar to hit.
Any suggestion based on presentation, content and context that a reasonable person would view as a suggestion to take action is going to be a recommendation that could trip the fiduciary wire.
For people who are broker-dealers and are familiar with the FINRA rules, it’s very close to the FINRA definition of a recommendation. It also broadens the types of recommendations that are fiduciary advice. Today we always think about securities recommendations — a hold, a buy, a sell — on an investment. This rule has a much broader conception of advice. It would treat, for example, the recommendation of an advisory account over a brokerage account as fiduciary advice.
Any recommendation on a distribution — the classic example is a rollover recommendation, a recommendation for someone to go from a 401(k) plan, say, to an IRA — that would actually be considered fiduciary advice under this rule; an enormous expansion of what is investment advice, and many financial professionals who today are not ERISA fiduciaries are going to have to deal with these rules.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
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Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.