ADISA: The Department of Labor has Finalized its Retirement Advice Rule

The Department of Labor has issued the final version of its retirement advice rule covering a host of advice scenarios, including retirement plan rollovers and annuity sales. ADISA is encouraged by some of the changes but disappointed by the lack of independent analysis of intended and unintended consequences.

INDIANAPOLIS, April 23, 2024 /PRNewswire/ -- ADISA, the nation's largest trade association for the alternative and direct investment space, reacted to the announcement today from the Department of Labor's Employee Benefits Security Administration, which came more than six years after an industry legal challenge led to an appeals court decision that vacated the last Democratic presidential administration's attempt to expand the fiduciary duty to more areas of retirement advice.

The DOL's final rule would require financial advisors and other retirement professionals to put client's best interests first when making recommendations for rollovers to individual retirement accounts and certain annuities. It would treat as fiduciaries those persons that make "professional investment recommendations to investors on a regular basis as part of their business" where the recommendation is made under circumstances "that would indicate… that the recommendation is based on review of the retirement investor's particular needs or individual circumstances, reflects the application of professional or expert judgment to the retirement investor's particular needs or individual circumstances, and may be relied upon by the retirement investor as intended to advance the retirement investor's best interest."

Speaking for ADISA, which participated in the rulemaking process both through testimony as well as a detailed comment letter, ADISA's Legislative & Regulatory Committee Co-Chair John Grady said the rule as adopted was amended from the proposed rule in order to respond to comments from the industry. "It remains to be seen whether these changes will have any material impact on how the rule is applied to broker-dealers and other ADISA members that recommend alternative investments to their clients," said Grady, adding that "the rule's focus on the context for the recommendation means that the Department heard the concerns expressed by ADISA and others that the revised definition of fiduciary, as proposed, would capture transactions that did not bear the hallmarks of a fiduciary interaction."

ADISA expressed concern throughout the rulemaking process that the DOL was not taking steps to ensure that the rule's impact would be studied and understood before it was finalized. The association's members primarily serve retail investors who have worked hard, saved along the way, and desired access to investment products that operate outside of the traded stock and bond markets. These investments have traditionally been available solely to wealthy individuals, but making them available to retirement and other savers, where appropriate to their circumstance, can be a powerful driver of returns. A 2021 Hispanic Leadership Fund study demonstrated the devastating effects of reviving the 2016 fiduciary rule, as would be done by the Rule as finalized: it would have the greatest adverse effect on Black and Hispanic retirement savers, reducing their projected accumulated IRA savings by approximately 20 percent over 10 years and contributing to an approximately 20 percent increase in the wealth gap attributable to IRAs for these individuals.

According to ADISA's Legislative & Regulatory Committee Co-Chair Catherine Bowman, "In moving quickly to adopt an important and far-reaching rule, the DOL missed the opportunity to do the kind of vital, painstaking research needed to understand both the intended and perhaps unintended effects of the rule on small balance savers, older savers, new savers and savers from communities that have experienced and continue to experience wealth and retirement savings gaps."

The rule is slated to go into effect on Sept. 23, which gives advisors and other industry professionals a mere five months to prepare for implementation.

ABOUT ADISA
The Alternative & Direct Investment Securities Association is the nation's largest trade association representing the non‐traded alternative investment space. ADISA's members are typically involved in non-traded real estate investment trusts, business development companies, master limited partnerships and private and public funds (LPs/LLCs), 1031 exchange programs (DSTs/TICs), energy and oil and gas interests, equipment leasing programs, or other alternative and direct investment offerings. The association was founded in 2003 and has approximately 5,000 members who are key decision makers, representing more than 220,000 professionals throughout the nation – including sponsor members who have raised in excess of $200 billion in equity and serve more than 1 million investors.

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SOURCE ADISA