What the proposal failed to address were the many exemptions that were added to the original legislation, says Guttenberg. Without addressing these loopholes, financial brokers and others involved with investment plans would not know if they were acting as fiduciaries.

For the first time, IRAs would be subject to the same rules as employee benefit plans.

 "There's a concern that smaller investment firms or broker/dealers may not have the resources to deal with all the compliance issues and would just leave IRAs to the big companies in that space now," she said. "It could lead to less choice for plan participants and higher costs."

In June, Phyllis Borzi, assistant secretary of labor, testified before a Congressional committee, saying that the Department of Labor proposed the amendment to its fiduciary regulation because the Employee Benefits Security Administration is "committed to pursuing policies that encourage retirement savings and promote retirement security for American workers."

A key part of EBSA's job is to safeguard the money that workers and employers set aside for workers' retirement. In her speech, Borzi pointed out that there are 48,000 private-sector defined benefit plans that hold about $2.6 trillion in assets. There also are nearly 670,000 private-sector 401(k) and other defined contribution account plans that hold about $3.9 trillion in assets. Individual retirement accounts or IRAs hold an additional $4.7 trillion.

"The Department's current initiative will amend a flawed 35-year-old rule under which advice about investments is not considered to be "investment advice" merely because, for example, the advice was only given once or because the advisor disavows any understanding that the advice would serve as a primary basis for the investment decision," she said. "Investors such as pension fund managers and workers contemplating investing through an IRA should be able to trust their advisers and rely on the impartiality of their investment advice," she said.

Borzi added that the Department is "committed to developing and issuing a clear and effective rule that takes full and proper account of all stakeholder views, and that ensures that investment advisers can never profit from hidden or inappropriate conflicts of interest."

Bronislaw Grala, senior counsel for Cadwalader, Wickersham & Taft LLP in New York, and head of Cadwalader's ERISA practice, said that, "Generally speaking, if I assume good faith on the part of the Department of Labor, it is a little hard to criticize them for wanting to provide greater protections for investors, people who have plans or IRAs. But in my mind, the proposal went way too far and was not well thought out in terms of unintended consequences."

He added that, "once you characterize someone as a fiduciary, they now owe a fiduciary duty to not give advice in which they have a conflict." That's fine, he said, except that several exemptions to the fiduciary definition were put in place in the '70s. "When you change the definition, a lot of exemptions become unusable," Grala said. "They didn't think through what would have to be done. They aren't just reinventing the definition of fiduciary, but reinventing all of these exemptions."

The proposed rules would have a huge impact on the retail financial and retirement community, he said. For instance, brokers make their money off commissions. Clients who use a broker to set up an IRA account might ask the broker for recommendations about what to invest in. Currently, brokers make general recommendations, based on what other investors are doing within their IRAs, carefully keeping an eye on the current definition of fiduciary, Grala said. If a client decides to place an order, the broker gets a commission.

"If that advice is redefined as giving investment advice, they would have a conflict of interest. They gave advice that resulted in them getting an additional fee," he said. "The retail industry argued that brokers will have to change their financial model to continue to service these people; they would have to charge an advisory fee rather than a brokerage commission. If it involves a principal transaction, like buying a bond, they will have to go to some other seller that may not give the IRA as good a deal as the original broker dealer," he said.

Another point that upset the retail industry was that the DOL did not research what the economic cost would be. "Whenever an agency proposes a regulatory change, they are supposed to do a cost benefit analysis and the Department came in when they proposed this with some ridiculously low number of what the cost would be living with the new proposal," Grala said.

Another argument was whether or not the DOL had jurisdiction to change the regulation to apply to IRAs. "IRAs are creatures of the IRS code and the IRS service. They are not covered by ERISA proper that the DOL governs," says Grala.

"Major money managers, they don't, for the most part, act in the same way that the retail industry does for small plans and IRAs. They admit they are fiduciaries, hired to manage money. They don't get caught up in that part of the problem," he said. "What they fear is that when they go to broker dealers to engage in traditional activities, the broker dealers will behave differently than they used to behave because the broker dealer will fear he will become a fiduciary."

Plan service providers have asked that the Department of Labor coordinate with plan and service providers before they come back with a new proposal, Guttenberg said. When the new proposal does come out, "hopefully it will be more articulated and provide more detail," she said.

Some individuals have questioned the need for a new definition of fiduciary. But the Department asserts that changes are necessary. In her June speech to the committee, Borzi stated that "consolidation in the financial industry and innovations in products and compensation practices have multiplied opportunities for self-dealing and made fee arrangements less transparent to consumers and regulators."

In the '70s, when ERISA was first authored, most individuals were covered by private-sector defined benefit pensions, where someone else made the investment decisions. In the past 35 years, that demographic has shifted, with more individuals investing in self-directed plans like 401(k) and IRA plans. Many people investing in these plans have "low levels of financial literacy," Borzi said. So it makes it imperative that they are getting good investment advice that works best for their financial needs.

Most industry experts agree that the Department of Labor isn't going to let the issue drop. It will, however, look at all of the comments it has received on the proposed rules and try to change the proposal and the exemptions in ways that make it clear for all involved.