Brooklyn Law Review


Poor investment decisions rob many Americans of the worry-free retirement for which they had desperately planned. Hiring an investment adviser does not always shield retirement savers from making poor investment decisions because some advisers have conflicts of interest and receive commissions for recommending certain investments. This practice encourages them to recommend products that generate advisers more income rather than products that most benefit investors. To address these conflicts of interest, the Department of Labor (DOL) promulgated a new rule redefining when an investment adviser is a “fiduciary” of a retirement investor under the Employee Retirement Income Security Act of 1974 (ERISA). A fiduciary must give recommendations in the investor’s best interest and must disclose conflicts of interest. The new rule combats conflicts of interest and protects investors by more broadly categorizing which types of advice will create a fiduciary relationship between the adviser and the investor. This note explains the importance of fiduciary obligations, surveys different retirement investment plans and how they are regulated, and explores the new rule’s impact on retirement investors and their advisers. Adequate protection for retirement investors can only be achieved through strategic balancing of investor protection with measures to ensure that advice remains available and affordable. The best solution is to impose the best interest standard on all providers of retirement investment advice without limiting investors’ access to affordable advice.