DOL Releases Investment Advice Exemption Guidance

On April 13th, 2021, the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) issued investment advice exemption guidance. Specifically, the guidance affects retirement investors, employee benefit plans, and investment advice providers. This announcement follows the release of and offers guidance on the EBSA’s “Improving Investment Advice for Workers & Retirees” exemption. That specific exemption went into full effect on February 16th, 2021.

Background on the Exemption

The February rule is an exemption targeted towards investment advice fiduciaries (IAFs). The exemption allows IAFs, as defined under the Employee Retirement Income Security Act (ERISA), to receive compensation for investment advice. The rule also allows the fiduciaries to engage in principal transactions that otherwise violate ERISA provisions. The exemption also provides the DOL’s final interpretation of when advice pertains to plan asset rollovers is fiduciary investment advice. The interpretation also includes advice dealing with retirement plan asset rollovers to or between IRAs. According to EBSA Deputy Assistant Secretary of Labor Ali Khawar, the exemption “… allows for important investor protections.” These include a stringent ‘best interest’ standard of care for fiduciary recommendations of rollovers from ERISA-protected retirement accounts. Khawar continued, “We recognize […] providers have been preparing for [this], and this step [allows] them to implement important changes.”

Overview of the Latest Release

Included within the EBSA’s April investment advice exemption guidance are two documents:

• “Choosing the Right Person to Give You Investment Advice: Information for Investors in Retirement Plans and Individual Retirement Accounts.” This document includes questions a retirement investor can ask when interviewing potential advice providers. Also, it provides background information to help investors understand the purpose of each question. Additionally, investor-focused, frequently asked questions about the exemption are made available.
• A set of compliance-focused, frequently asked questions helps guide investment advice providers who rely on the exemption.

Employer Takeaways

In summary, the investment advice exemption guidance acts as clarification for what investors should seek when requesting financial advice. Employers, however, should be aware of the guidance as it could alter their engagement and interactions with plan service providers. For example, the guidance provides information on the importance of selecting an advice provider who is compliant with EBSA regulations. Businesses could face fines and lawsuits if their plan service providers are not following appropriate laws and regulations.