The Biden administration on November 3 released a proposed rule aiming to expand the definition of a fiduciary—someone who must act in the best interests of their clients—to include more types of financial professionals in certain situations. The proposal had received more than 8,900 public comments as of December 15.
The rule is related to Ballotpedia’s coverage of issues related to environmental, social, and corporate governance (ESG), which, in the context of public policy, includes discussions of what types of investments are in the best interests of investors and who must act as a fiduciary.
The proposed definition would require—at the federal level—that insurance agents, brokers, and other financial advisors must, in certain circumstances, act as fiduciaries for individual investors. The proposed definition would also require them to avoid advising individuals on matters that present a conflict of interest (such as when an adviser or insurance agent might collect a larger commission for selling a product that would not maximally benefit the investor).
The proposal would only apply when, in the Department of Labor’s (DoL) view, an individual investor might “reasonably place trust and confidence in the financial services provider.”
The current federal definitions were created in the 1974 Employee Retirement Income Security Act (ERISA). According to ERISA, federal fiduciary requirements primarily apply to employer-funded pension plan managers and plan advisers. The requirements do not apply to many types of individual investment advisers.
Supporters of the proposal say it would protect individual investors from bad advice, junk fees, and exploitative financial advisors. Opponents say it would overstep the DoL’s authority, overregulate the financial advisory industry, and prevent lower- and middle-income investors from getting good advice.
The Department of Labor is accepting comments on the proposal until Jan. 2, 2024.
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