The United States Department of Labor (“DOL”) has had a very active summer regulating the securities industry. Yes, you heard it right, the DOL has made certain pronouncements that have considerable effect on the securities industry.
Initially, the DOL allowed 401(k) plans to invest in private equity funds so long as they are managed by an investment professional. The DOL allowed specific types of private equity investments provided the investment professional satisfied its fiduciary obligations. Since these investments are illiquid, the DOL capped these investments at 15%.
Additionally, the DOL has now proposed a new fiduciary advisor rule to replace the previous rule that was abandoned by the current administration. Ironically, the current Secretary of Labor led the legal attack that scuttled the previous rule. The “new” rule adopts the previous test if a registered investment advisor or broker-dealer constitutes an “investment advice fiduciary”: (1) securities value advice; (2) regularity; (3) agreement; (4) investment decisions’ basis; (5) and individualized. This “investment advice fiduciary” must also satisfy the SEC’s new best interest standard, provide sufficient disclosure, and have appropriately implemented compliance policies as well as reviews.
In sum, the DOL’s pronouncements indicate that it will be looking very closely at the actions of securities professionals. As such, it would be important for securities professionals to be prepared for those inquiries by consulting with counsel at the earliest convenience.