CFP Board Supports Expansion of Fiduciary Duty

CFP® Certificants in the News

The Employee Retirement Investment Security Act of 1974 (ERISA) pioneered desperately needed reforms for employer provided retirement plans. As just one example of pre-ERISA abuses, some employers required lengthy vesting requirements and—in a flagrantly deplorable practice—terminated employees before they became vested to avoid paying pensions.

Fifty years ago, ERISA rode to the rescue for employees covered by employer-provided retirement plans. The DOL summarizes ERISA as “… requires plans to provide participants with plan information including important information about plan features and funding; sets minimum standards for participation, vesting, benefit accrual and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; gives participants the right to sue for benefits and breaches of fiduciary duty; and, if a defined benefit plan is terminated, guarantees payment of certain benefits through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation (PBGC).”  However, what was effective in 1974 is, according to CFP Board, in need of updated protections for IRA and 401(k) individual retirement planning.

Changing Times

Iconic folk musician Bob Dylan’s1 song “The Times They Are A-Changin’” can describe the need to update ERISA. CFP Board opines as follows—"The investment landscape has changed dramatically since Congress enacted ERISA in 1974 and the Department promulgated the regulation defining fiduciary advice.  Due to the advent of 401(k) plans, the popularity of IRAs (i.e., individual retirement accounts and individual retirement annuities), and the shift away from defined benefit pension plans, most workers today are personally responsible for managing their own retirement savings.  With so much at stake, investors now overwhelmingly expect that financial professionals will provide them with financial advice in their best interests:

  • A 2018 Center for Capital Markets Competitiveness survey revealed that 97% of U.S. investors already believed that their financial professionals had their best interest in mind [when that was not always the case].
  • A 2022 CFA Institute study showed that retail investors value financial professionals who will be “trusted to act in my best interest” more than any other attribute [emphasis added] when looking to hire a financial professional.
  • A December 2023 AARP survey revealed that 89% of investors age 50 and older who have used a financial professional expect them to provide advice in their best interest.”

The 2023 DOL Proposed Rule (Proposed Rule)

The proposed rule broadens the definition of a fiduciary as follows:

“The updated definition of an investment advice fiduciary would apply when financial services providers give investment advice for a fee to retirement plan participants, individual retirement account owners and others… Analysis of just one investment product—fixed index annuities— suggests that conflicted advice could cost savers up to $5 billion per year for this product alone.”

In addition, the Proposed Rule establishes tighter requirements for advising a client to rollover their employer-sponsored plan account into an IRA. Financial advisors and planners should keep the potential for an expanded fiduciary duty on their radar so that, if the rule is adopted, they’ll be ready.

1 For you Gen Z’ers, Bob Dylan was awarded the Presidential Medal of Freedom by President Obama. Bob is a Nobel Prize winning artist and is credited by many as the first artist to incorporate social issues into his songwriting.