ADISA appreciated the opportunity to comment on the Department of Labor’s proposal to update the definition of an investment advice fiduciary for purposes of Titles I and ll of ERISA as well as to amend several related prohibited transaction exemptions ("PTEs").

The Department’s Proposal involves a significant revision to the definition of “investment advice fiduciary,” one that will impose fiduciary status on financial service providers engaging in a wide range of transactions. ADISA does not support the approach fashioned by the Department, and believes that the Proposal will make it much harder (if not impossible) for smaller savers in IRAs to access alternatives. ADISA argues that the larger commission levels associated with less liquid alts will make for a difficult time under the reasonable compensation standard made applicable by the prohibited transaction exemptions.

ADISA advocated on behalf of its members that the broker-dealer model is under siege by the Department and the commission component, which is sometimes higher than other commissions, will make broker-dealers less likely to sell alts to IRAs as a result.

While well-intentioned, the way chosen by the Department is not, in ADISA’s judgement, the best path. The broker-dealer commission-based model, which can be quite advantageous for smaller balance savers to use, will be disadvantaged by the Proposal and may disappear from use in the IRA context. This will have harmful effects on small balance savers of all types, and particularly those who are older savers as well as newer entrants to the workforce and those savers from communities that have not been able to save for retirement. To the extent that the disappearance of the broker-dealer model will make it more difficult for the small balance saver to employ a cost-effective model when getting help with investing their savings, it will make it far harder for those same investors to access alternative investments.

Under the circumstances, ADISA believes the Proposal should be re-worked to eliminate these disadvantages by carving out commission-based alternative investment products and looking to Reg BI as a better way to assess them. 

The letter was drafted by ADISA Legislative & Regulatory Committee Co-Chairs John Grady, ABR Dynamic Funds, with review by Catherine Bowman, The Bowman Law Firm, and input from ADISA’s Governmental Relations staff and consultants (HillStaffer). It was signed by ADISA 2023 President Michael Underhill, Capital Innovations.

Read the letter in its entirety here.