By Anne Sherry, J.D.
Several securities industry associations submitted comments on the Department of Labor’s proposal to update the definition of an investment advice fiduciary under ERISA. While the Investment Adviser Association had only minor suggestions because advisers are already fiduciaries, the Investment Company Institute, SIFMA, and SIFMA AMG all protested the cost and scope of the rule, and the harms that will befall investors if it is adopted.
SIFMA and SIFMA AMG raised a litany of concerns about the DOL rule, saying the definition of “fiduciary” is overbroad and the exemptions are too narrow. The Labor Department has not shown why the proposal is even necessary, and its cost analysis is flawed, SIFMA wrote—the rule will lead to reduced options for small businesses and individuals as well as the loss of market information.
SIFMA also observed that the proposal is only part of a project to improve the standard of care that has resulted in the SEC’s Regulation Best Interest, the NAIC’s best interest standard, and the DOL’s own PTE 2020-02, which has not even been in effect for two years. “Firms that chose to use PTE 2020-02 made changes to their business practices to make this exemption work, but now the Department is making further changes without having undertaken any study or analysis of the impact of making such changes,” SIFMA protested.
Likewise, the Investment Company Institute decried the rule’s costs and said it would have unintended consequences that would harm retirement savers. ICI also said the proposal is legally flawed. Both ICI and the SIFMA groups said the rule conflicts with Chamber of Commerce v. United States Department of Labor (5th Cir. 2018), which held that the common-law relationships between fiduciary and beneficiary were integral to ERISA’s fiduciary definitions. The DOL proposal contravenes this holding by treating brokers subject to Regulation Best Interest as ERISA fiduciaries, ICI writes.
The Investment Adviser Association, on the other hand, said that the proposal would have a more limited impact on its members, who are already ERISA fiduciaries when providing advice to retirement clients. The group offered more limited clarifications and changes, including distinguishing preliminary “hire me” conversations from investment advice, excluding sophisticated plan fiduciaries, protecting sensitive compliance measures, and considering the disproportionate impact of the proposal on smaller advisers.