The Preamble does not clearly distinguish between prospective clients and existing clients. Specifically, [IAA is] concerned that the Preamble could be read to encompass within the five-part test a recommendation by an adviser that a retirement investor, including a participant that wants to engage in a rollover transaction, hire the adviser to provide on-going services before there is a relationship between the adviser and prospective client. We do not believe that this was the Department’s intent, since such an interpretation would contradict the Advisers Act Fiduciary Duty Interpretation with which the Department expressly sought to align the Proposed Exemption. —
Investment Adviser Association
The DOL does not go far enough in protecting individuals regarding advice relating to their IRA accounts, [and should] revisit the “regular basis” prong of the five-part test in order to subject all rollover advice to the PTE. We strongly encourage the DOL to provide more helpful disclosures to investors about their rights and remedies vis-à-vis the SEC and DOL regulations. —
Returning to this [five-part] test would be a mistake because it is harmful to beneficiaries and sponsors of retirement accounts. The DOL’s 2016 Fiduciary Rule adopting release aptly articulated why the five-part test is bad policy. While well intentioned when it was first implemented, the five-part test did not stand the test of time. As noted in the 2016 Fiduciary Rule adopting release, the 1975 test was created in a very different environment than exists today; i.e., “prior to the existence of participant-directed 401(k) plans, the widespread use of IRAs, and the now commonplace rollover of plan assets from ERISA-protected plans to IRAs.” ... The DOL does not go far enough in protecting individuals regarding advice relating to their IRA accounts, [and should] revisit the “regular basis” prong of the five-part test in order to subject all rollover advice to the PTE. We strongly encourage the DOL to provide more helpful disclosures to investors about their rights and remedies vis-à-vis the SEC and DOL regulations. —
North American Securities Administrators Association
DOL should consider, in a separate proceeding, revisiting elements of the “five-part test” for fiduciary investment advice — in particular, the “regular basis” prong of the test. …In particular, the ARA’s long-standing position has been that the “regular basis” element of the test, requiring that advice be part of an ongoing relationship, is too narrow, for the reasons described in the Department’s 2016 notice adopting the final regulation. That is, we share the concern that the regular basis element fails to draw appropriate distinctions between the sorts of advice relationships that should be treated as fiduciary in nature and those that should not. —
American Retirement Association
Much of the preamble’s description of the five-part test appears to be taken from the Department’s 2016 regulatory initiative that the Fifth Circuit Court of Appeals clearly set aside. Many of the comments ... appear to have little or no support in any Department regulatory or sub-regulatory guidance, nor in any case law. The preamble language could be read as a strong inference that someone recommending a rollover is likely to be a fiduciary when advisors may provide education to the client regarding their options, including not “cashing out” and depleting retirement savings, or a rollover occurs during a “hire me” discussion and the advisor does not provide a recommendation regarding whether to rollover or stay in the plan. —
Securities Industry and Financial Markets Association
Pictured in this gallery: General Counsel Gail Bernstein of IAA, President Christopher Gerold of NASAA, CEO Brian Graff of ARA, CEO Ken Bentsen of SIFMA.
Gripes about a short comment period pervaded the comments the Labor Department received on its fiduciary package, but commenters also voiced concern, and asked for clarity, regarding Labor reinstating the 1975 five-part test defining fiduciary investment advice under ERISA — and its impact on rollovers.
“The definition itself, with its five-part test, has already been finalized,” Barbara Roper, director of investor protection for the Consumer Federation of America, told ThinkAdvisor in a Friday email. “The comments reveal how inappropriate it was for the DOL to take that action without going through a notice and comment process.”
Labor, Roper said, should “withdraw the final rule reinstating the definition and instead issue a proposed rule, including its interpretation, for further comment.”
Check out the gallery above to see how five groups weighed in on Labor reinstating the five-part test. Click the links to read their full comments.
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