The U.S. Department of Labor (DOL) recently proposed a significant restructure of the country’s fiduciary rule. According to details released by JD Supra, the proposed rule could have implications for advisers currently subject to the traditional five-part test to determine if they are acting in a fiduciary capacity.
The details of the proposal suggest that the DOL is considering a shift from the existing five-part test to a new three-part test. This test would make it more straightforward for advisers to fall under the ambit of fiduciaries, as they would only need to meet one of these three conditions to qualify as a fiduciary.
Currently, the five-part test holds advisers accountable based on their engagement in the direct management of client assets, delivery of investment advice in a professional capacity, advice provided on a regular basis and the individual customization of advice delivered to clients. More importantly, the relationship between the adviser and the client must involve a mutual agreement or arrangement to abide by the advice provided, solidifying the advisor’s role in a fiduciary capacity.
Although the specific details of the proposed tripartite test have yet to be disclosed, it is clear from early reports that the DOL seeks to adjust the standard against which advisers’ fiduciary roles are judged. It’s important for legal professionals and advisers alike to understand the potential shifts in landscape this new ruling could bring.
This change comes as part of ongoing efforts by the DOL to ensure that the parameters within which fiduciaries operate appropriately safeguard the interests of their clients. The proposal is currently under review, with further details expected over the coming weeks.