New DOL Fiduciary Rule Could Rein In Use of Advisor-Like Titles


Titles like “financial planner” and “wealth manager” may convey a relationship of trust, the department says.

The Labor Department is requesting comments on how to potentially regulate advisor-like titles — such as financial consultant, financial planner and wealth manager — under its new fiduciary rule.

The preamble to the proposed rule says the department wants feedback on titles that “may convey the offer of individualized recommendations and are relied upon by the retirement investor,” Duane Thompson, senior policy analyst at Broadridge Fi360 Solutions, said on a recent webcast held by Broadridge.

By requesting such feedback, Labor, according to Thompson, may “add something in the final rule that if you use these advisor-like titles, that may convey to a potential retirement investors that you’re acting in a position of trust and confidence.”

Preamble Language

The preamble to the DOL’s current fiduciary rule proposal states on pages 42 and 43 that Labor “intends to examine the ways investment advice providers market themselves and describe their services.”

For example, the premable continues, “some stakeholders have previously expressed concern that investment advice providers that adopt titles such as financial consultant, financial planner, and wealth manager, are holding themselves out as acting in positions of trust and confidence while simultaneously disclaiming status as an ERISA fiduciary.”

In the Department’s view, “an investment advice provider’s use of such titles routinely involves holding themselves out as making investment recommendations that will be based on the particular needs or individual circumstances of the retirement investor and may be relied upon as a basis for investment decisions that are in the retirement investor’s best interest,” the premable states.

Labor is also requesting comment on whether “other types of conduct, communication, representation, and terms of engagement of investment advice providers should merit similar treatment.”

The premable to Labor’s Retirement Security Rule also points out that “in addition to lacking rudimentary financial knowledge, many retirement investors do not understand the roles of different players in the investment industry and what those players are obligated to do.”

With this language, Labor’s “concern is that, while different titles may have meaning in the financial services sector, those titles are indistinguishable to main street investors and the investors may believe that they can place trust in the recommendations because of the titles,” ERISA attorney Fred Reish of Faegre Drinker told ThinkAdvisor Monday in an email.

Reish explains in a recent blog post how Labor may react to lawsuits challenging its new fiduciary rule by emphasizing the rule’s consistency with the common law of trust.

Labor’s proposal is responsive to the emphasis on “relationships of trust and confidence” found in the U.S. Court of Appeals for the Fifth Circuit’s ruling that struck down Labor’s 2016 fiduciary rule, Reish explains.

Labor’s plan also “bases investment advice fiduciary status on circumstances that indicate the retirement investor may place trust and confidence in the recommendation as a professional recommendation based upon the particular needs of the investor,” Reish said.

Reg BI and Unfair Trade Practices Act

The Securities and Exchange Commission’s Regulation Best Interest and the National Association of Insurance Commissioners’ model Unfair Trade Practices Act also prohibit “the use of advisor-like titles, if you’re acting in a sales capacity,” Thompson explained during the webcast.

“Reg BI does prohibit … the use of the term ‘advisor’ by a registered representative unless they are also registered as an investment advisor rep,” Thompson said.

The Unfair Trade Practices Act, which Thompson said “has been widely adopted by the states,” includes a provision “that prohibits and insurance producer from holding out to the public as a financial planner, investment advisor consultant or financial counselor if that person is engaged only in the sale of policies.”

Comment Period

A public hearing will be held Dec. 12 on Labor’s new fiduciary proposal, and the comment period expires Jan. 2.

Lisa Gomez, assistant secretary of Labor for the Employee Benefits Security Administration, denied a request by industry trade groups to extend the comment period on the rule.



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