But investor advocates argued that the DOL has the responsibility to administer congressionally established requirements for financial advice under ERISA that are distinct from, and more rigorous than, those that apply under insurance and securities laws to nonretirement assets.
“In terms of who the rule does not apply to, presently, many brokers are able to carve themselves out of fiduciary status under ERISA by using account agreements that disclaim one or more elements of the five-part test,” Christine Lazaro, former PIABA president and a professor of clinical legal education at St. John's University School of Law, said in an interview after participating in the briefing.
Most commonly, “the firms state that they are not giving advice on an ongoing basis or that the advice they give is not the primary basis for any investment decision made by the investor. This is a problem because retirement investment advice is then subject to the lower SEC standards, and investors are not getting fiduciary advice,” Lazaro said.
“We did also talk about how the SEC rule doesn’t really overlap with the DOL rulemaking because the SEC does not have jurisdiction over several different types of advice givers, including insurance brokers, commodities brokers or more general financial planners,” she added.
Stephen Hall, the legal director of Better Markets, a pro-consumer trade group, said at the briefing that that other regulations applicable for financial advisers “do not, and actually cannot, substitute for a strong DOL rule.
"The bottom line is that neither the SEC nor the state insurance regulators have the legal authority or the resolve that is necessary to adequately protect retirement savers from the advisor conflicts of interest that siphon away so much of their hard-earned money,” Hall said.
According to Hall, the current DOL Rule gives firms the ability to routinely stipulate in the fine print of their contracts that elements of the agency’s five-part test—and therefore the fiduciary duty itself—simply do not apply.
“For decades, advisors have been able to avoid their fiduciary obligations under ERISA and profit handsomely by persuading investors to roll their savings into a wide variety of high-cost, high-risk and poorly-performing investments,” Hall said.
Although the DOL has issued guidance “in an effort to limit the ability of advisors to skirt the law under the definition, the fact remains that all advice, including rollover recommendations, remains subject to the five-part test," he said. "Modernizing the current DOL five-part test through formal rulemaking is essential."