New DOL Fiduciary Rule Will Be Crushed in Court: SIFMA

Then, SIFMA continued, “once the Department makes these conversations ERISA fiduciary conversations, individuals will only be able to receive relief by fitting within” PTE 2020-02, which covers rollover advice.

Labor, according to SIFMA, “is using a one-size-fits-all approach which was never the intent of Congress when providing the Department with the ability to issue exemptions.”

Even more troubling, according to SIFMA, “the Department’s herding of financial institutions and transactions into a single, highly prescriptive exemption is plainly an improper attempt to regulate both plans and IRAs using its deregulatory authority to issue exemptions from the prohibited transaction provisions of ERISA and the Tax Code — just like it did with the 2016 package.”

By “significantly expanding the definition of ‘fiduciary,’ and using that expansive definition to leverage tightened requirements under an amended PTE 2020-02, the Department is inviting litigation that will invalidate not merely these new amendments but also the original PTE 2020-02, which, while imperfect, had gained a measure of acceptance within the industry,” SIFMA maintained.

‘Inconsistent’ With Reg BI

In attempting to justify the new rules, Labor “suggests that it is simply trying to harmonize ERISA’s regulation of investment advice with SEC rules on a best interest standard,” SIFMA wrote. “While SIFMA’s members comply with the SEC’s Reg BI standard, and believe it is a strong standard,” Labor’s plan “is inconsistent with many aspects of Reg BI.”

While “nothing in Reg BI covers recommendations that are not individualized to the client,” under Labor’s plan, “casual suggestions to large groups can constitute fiduciary advice if other assets are managed by an affiliate,” SIFMA said.

Labor ”must make explicit that neither statements in marketing materials or marketing in public media is an acknowledgement of fiduciary status,” the trade group advised.

Reg BI applies when making an individualized recommendation of any securities transaction or investment strategy involving securities (including account recommendations) to a retail customer, the trade group explained.

However, in Labor’s new fiduciary plan, “if other accounts of the retirement investor are managed on a discretionary basis by the financial professional or an affiliate, a non-individualized recommendation can be subject to the fiduciary rule,” the group said. “We think this is the wrong approach. All recommendations must be individualized to constitute fiduciary advice.”