The Department of Labor recently unveiled the finalized Fiduciary rule on April 23rd, putting an end to speculation surrounding its content. This comprehensive set of regulations comprises several updates, with the central focus being the Retirement Security Rule: Definition of an Investment Advice Fiduciary. Additionally, three other parts address Prohibited Transaction Exemptions 84-24, 2020-02, and various exemptions pertaining to ERISA plans.
The rule outlines a fiduciary as any individual providing advice to a retirement account holder. It mandates that investment advice providers offer prudent, loyal, and transparent guidance devoid of excessive charges to all retirement investors. Notably, the rule expands the scope to include financial professionals, such as insurance producers or registered individuals, making one-time recommendations. Previously excluded fixed annuities are now deemed fiduciary advice, necessitating comprehensive disclosures of fees, expenses, and compensation, alongside an acknowledgment of fiduciary capacity.
Under ERISA, receiving compensation is prohibited unless done so under an exemption, hence the existence of Prohibited Transaction Exemptions (PTE). Common exemptions include PTE 84-24 and 2020-02, with the former predominantly utilized for non-registered products like fixed and indexed annuities. Significant changes to PTE 84-24 necessitate thorough documentation of all fees, charges, and commissions paid by customers, including commissions disclosed as a percentage of annual premiums. PTE 2020-02, commonly applied to securities products, undergoes broadened documentation requirements.
The rule comes into effect on September 22, 2024, with a phased implementation period of 12 months. During this interim phase, adherence to impartial conduct standards is mandatory, while full disclosure requirements will not be enforced until 2025.
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