Court strikes down DOL fiduciary rule for advisors who give 'rollover' retirement advice

These advisors often make rollover recommendations for purchase of annuities to IRA owners and participants in employer-sponsored 401(k) plans, for which they receive commissions.
On July 9, U.S. District Judge Ed Kinkeade, in the Northern District of Texas, issued an order that accepted the findings and recommendations of a U.S. magistrate judge’s 2023 recommendation to vacate portions of the DOL’s guidance under the Prohibited Transaction Exemption.

The new DOL rule was “the latest iteration of decade-old effort by the government to turn more financial professionals, including insurance agents, into fiduciaries subjecting them to more onerous regulatory requirements,” said executive director Kim O’Brien, in explaining why the federation originally filed the suit.

However, new DOL regulations that expanded liability for financial institutions and their employees or agents who give retirement rollover advice, which went into effect in 2022, said “financial institutions must document the reasons that a rollover recommendation is in the best interest of the retirement investor and provide that documentation to the retirement investor,” according to the DOL.

In this particular case, the judge rejected the DOL’s attempt to consider a single rollover as the start of an ongoing advisory relationship, the assumption of possible future advice to IRAs and the view that a continuous advisory relationship covering both a workplace retirement plan and an IRA meets the “regular basis” requirement for fiduciary status.