narayan
It’s natural—and frequently sensible—for financial services firms to take a wait-and-see approach when the Department of Labor publishes proposed guidance. Particularly at the home office level for mid-to-large-sized firms, where it can take tremendous resources to turn the ship, firms are best-served by waiting for final DOL guidance before charting a new course.
That’s the case in normal times. We’re not living in normal times. (At a minimum, it’s not historically normal; it may indeed be our new normal.) So when the DOL issues a proposed regulation that would address retirement plan investment selection and monitoring standards in the most wide-sweeping manner since 1979, any advisors working with retirement plans should take an interest in understanding the proposal. Here, there’s a payoff to that interest; even in its proposed status, the regulation and its preamble present immediate opportunities for advisors.
Background. The retirement plan marketplace has experienced two seemingly competing trends: (1) increased litigation, frequently centering on allegations of excessive fees; and (2) a desire for greater complexity in plan investment options, frequently involving the likelihood of higher investment management fees. While mindful of the first trend, President Donald Trump’s Aug. 7, 2025 executive order took direct aim at the second trend when it directed the DOL to issue guidance that would facilitate greater access to alterative assets within asset allocation vehicles.
The Proposed Regulation. On March 31, the DOL published a proposed rule titled “Fiduciary Duties In Selecting Designated Investment Alternatives” that would deliver that guidance … and more. The proposed regulation would not narrowly apply to alternative assets, nor would its application be confined to asset allocation vehicles. Instead, it would clarify the fiduciary duty of prudence applicable to the selection of all designated investment alternatives and provide a corresponding fiduciary safe harbor.
Immediate Opportunities for Advisors. We won’t have a final regulation until some unknown date following the 60-day comment period. In the meantime, advisors should be curious about the contents of the proposed regulation and how to discuss it with clients. The proposed regulation provides the following immediate opportunities to add value to client relationships:
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Process, Process, Process. The DOL emphasized that ERISA is a “law grounded in process.” It cited to federal courts’ characterization of the duty of prudence as being “largely a process-based inquiry.” It then cited seven additional cases confirming that prudence is assessed based on a fiduciary’s investigation at the time of the investment decision and not in hindsight based on the investment results.
Advisors should remember—and remind clients—that process is the key to fiduciary responsibilities.
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Product Neutrality. Last year, the DOL withdrew guidance that taken an anti-cryptocurrency stance. In doing so, it pledged neutrality regarding various asset classes that may be used in plans, focusing more on process than product. The proposed rule would further illuminate the DOL’s product neutrality, with a variety of examples demonstrating how plan fiduciaries could prudently select active and/or passive investment options, target date funds, annuities, asset allocation vehicles including public and/or private investments, among others.
As advisors pursue opportunities to respond to demand for more sophisticated investments within plans, the understanding of product neutrality will be a nice complement to a prudent process.
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Factors. The proposed rule would establish a safe harbor through which plan fiduciaries would be presumed to have satisfied the duty of prudence and receive significant deference with respect to the investment menu. The safe harbor would require the objective, thorough, and analytical consideration of six factors with respect to each designated investment alternative: (1) performance; (2) fees; (3) liquidity; (4) valuation; (5) performance benchmark; and (6) complexity.
Advisors can buy some time (while the DOL finalizes the regulation) before making changes to investment policy statements and related processes by gaining an understanding of the ways in which their current processes take into account these six factors.
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Get Ready for the Safe Harbor. The proposed regulation isn’t yet a gamechanger. However, the final regulation will be one if it bears any likeness to it. The above suggestion may reveal that current processes closely resemble the safe harbor. However, there will be a premium on precision when it comes to modifying governing documents and investment policies to ensure they track the final safe harbor.
Advisors should ensure their internal support teams are thinking about the need to evolve once the final regulation is issued and confirm with their clients that their firm is “on it.”
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The Value of Being an Advisor. Within the preamble and body of the proposed regulation, the DOL repeatedly includes references to plan fiduciaries relying on a third-party investment fiduciary—whether under ERISA 3(21) or 3(38)—in the satisfaction of their fiduciary responsibilities. (Last year, a federal court painted a similarly clear picture of the value of an investment management fiduciary.) The DOL confirms its position that hiring an ERISA 3(21) investment advice fiduciary or an ERISA 3(38) fiduciary investment manager isn’t merely about risk mitigation for plan fiduciaries; the DOL notes that such a hiring decision “can provide important benefits to the plan’s participants and beneficiaries.”
Advisors should internalize that perspective and appreciate that their role is greater than mere risk mitigation; good fiduciary advisors indeed benefit participants and beneficiaries.
The final regulation will almost certainly reflect changes. Without a crystal ball to anticipate those changes, the five items identified above will put advisors in a position to confidently discuss the proposed regulation and further highlight the value they provide.
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