The ‘Fiduciary Rule’ that Wasn’t

  After years of anticipation — and months of litigation — the Department of Labor’s latest attempt to expand the definition of fiduciary investment advice is now dead.

That said, and with apologies to Mark Twain, reports of the “death” of the fiduciary rule are somewhat exaggerated. The 2024 version — the so-called Retirement Security Rule — was vacated, which, in legal terms, means we treat it as if it never existed.

But ERISA’s fiduciary framework remains very much alive.

Indeed, for advisors already serving as fiduciaries for retirement plans under the Employee Retirement Income Security Act of 1974, the practical impact of the recent court ruling is minimal. Advisors serving as 3(21) fiduciaries or 3(38) investment managers were — and remain — subject to ERISA’s duties of prudence and loyalty. 

Many advisory firms, frankly, had already adopted procedures and business models that would likely have satisfied even the Obama-era fiduciary rule.

Where the rule would have mattered was around the edges of the retirement advice marketplace, particularly in the increasingly scrutinized area of rollover recommendations.  That’s where the Labor Department — across three administrations — tried, unsuccessfully, to extend its oversight. 

And however well-intentioned those efforts were in terms of protecting rollover decisions, they always struck this writer as something of a stretch.

The Rollover Question

Under the longstanding framework — rooted in a 1975 regulation — an advisor becomes an ERISA fiduciary only if the advice satisfies a five-part test, including that it be provided on a “regular basis.”  As a result, a one-time recommendation to roll assets from a plan to an IRA would likely fall outside that definition.

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The now-abandoned rule sought to change that dynamic by broadening the circumstances under which advice would trigger fiduciary status — basically laying the foundation for a rule that said a single advice recommendation that was the basis for an ongoing relationship could qualify.  With the rule’s demise, that expansion isn’t happening — at least for now. 

So, it’s not as though there is no fiduciary rule — but to fall under its auspices, advice will need to meet the five-part test — as it has for the past 50 years.

A Familiar Regulatory Patchwork

The result is that the retirement advice marketplace continues to operate under a patchwork of standards.

Advice to a plan sponsor about investment options or plan design typically falls squarely under ERISA fiduciary obligations. But recommendations made to participants — particularly those involving distributions or rollovers — may instead fall under securities regulations such as Regulation Best Interest (a.k.a. Reg BI). 

In practice, the same advisor may operate under different regulatory regimes depending on the conversation.  For sponsors and participants, the distinction is rarely obvious.  And therein lies the danger.

Participants — and often plan sponsors — tend to assume the advisor across the table is already acting in their best interests. 

And this is as good a time as any to remind those you serve about the difference(s).

The Industry Has Already Moved

Even so, the demise of the 2024 rule doesn’t necessarily signal a return to the past[i].

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Over the past decade — beginning with the now-vacated Department of Labor Fiduciary Rule — many firms have shifted toward advisory models that emphasize fiduciary relationships, level fees, and reduced conflicts of interest.

In other words, while the regulatory framework remains largely unchanged, many advisors' business practices have already evolved.  And while some corners of the industry (looking at you, insurance) have resisted that shift, retirement-plan advisors largely haven’t.

Not the End of the Story

If the past decade has shown anything, it’s that the debate over fiduciary advice isn’t a single rulemaking — it’s a regulatory cycle.

For now, the practical reality is simple: advisors who were ERISA fiduciaries before remain ERISA fiduciaries today, and those who weren’t haven’t suddenly been “transformed”. 

But there remain rules — and standards — in place and active despite the recent ruling.

The larger question — whether rollover advice should carry fiduciary responsibility — will likely be settled only in the next regulatory round. Or maybe even by Congress.

-          Nevin E. Adams, JD

[i] Indeed, in addition to the five-part test, PTE 2020-02 remains in effect.

Does TikTok Really Hate the 401(k)?

A recent MarketWatch article poses the intriguing question: “Why does TikTok hate the 401(k) so much?”

Now, as social media platforms go, I’ve pretty much avoided TikTok. Oh, I’ve swung by it from time to time just to see what the “fuss” is, but generally speaking (and even in “retirement”), I’ve better ways to spend my day than scrolling through two-minute videos of—well, to my eyes, pretty insipid stuff.

On the other hand, I’ve long “dabbled” in social media platforms, and by dabbled, I mean I have established accounts, moseyed around, and ultimately “engaged” (some of you may (hopefully) even have noticed that I’ve been doing two-minute videos on LinkedIn for the past several months)—it’s just never been my “day job.” I’ve been on Twitter since 2008—LinkedIn even longer. Facebook (yes, I AM a Boomer, after all) since my kids got on it, and Instagram once Mr. Zuckerberg shackled that app to Facebook. I’ve read books on the subject of social media, attended conferences and training sessions (live and online) about how to use/leverage these tools—and still spent a lot of time over the past couple of decades waiting for the day when the actual response to a LinkedIn (or Twitter) post…mattered. I don’t mean the “likes” that Twitter shares, or the “impressions” or number of “followers” these platforms attribute to one’s account. They’re valuable metrics, of course—widely shared (and sometimes trumpeted). 

But as much as I enjoy social media—and relish the relationships that I have found and fostered there, in my experience it's still a bit of an echo chamber—one (still) frequented by people who are already “on” social media. Indeed, it seems for the very most part the people who are “there” are there to promote the use and value of social media to those not yet in that “club.” Not that you won’t find valuable content there—but plan sponsor clients? Participants?

That may be changing, of course. Published reports claim that TikTok has over 1.677 billion users globally out of which 1.1 billion are its monthly active users as of 2023. By any measure, that’s a lot of eyeballs. 

Setting aside the number (or quality) of those eyeballs, DOES TikTok really “hate” 401(k)s? Well, at least according to the article, it’s frequently cast as how the 401(k) menu limits your access to more “exotic” investments, and sometimes how hard it is to tap into those retirement savings. They even pillory the notion that you’ll eventually have to pay taxes on those withdrawals (glossing over the taxes you DIDN’T pay on the contribution and subsequent earnings)—one guy actually disparages (as one of FOUR reasons) 401(k)s as an effective retirement plan because it wasn’t INTENDED to be a retirement plan.  And yes, he has a product to sell/pitch.

That said, the “anti-401(k)” messages to be found on TikTok (and they still seem few and far between) are pretty much the same ones you find on any number of personal finance “guest contributors”—the type frequently crafted by individuals who would very much like to help you find your way to their “better” solution. Even on TikTok there ARE, of course, helpful messages as well—and a number of recordkeepers have already staked out some real estate on that platform.[i] But sadly, there appear to be no barriers or knowledge filters here, nothing to indicate that the purveyors of these solutions have, or should be accorded, any credibility on the topic(s) on which they hold forth. Rather, it seems that all you need is a short, snappy message, a rhythmic dance track in the background, and a steady camera (sometimes not even that) to garner attention.       

As noted above, I’ve been ON TikTok, but not established an actual account as I’ve been sensitive to the cautions about data sharing and privacy associated with that platform (though I’m only a tad less concerned about what American HQ-ed platforms do on that front). Overall, some parts of the TikTok “universe” may well be focused on sneering at the value of 401(k)s—and with audience numbers like those above—and a global reach, it’s easy to understand the appeal to any number of shucksters out there.    

But what I’d advise TikTok users to remember is P.T. Barnum’s observation…a man who knew something about shucksters—that there’s a sucker born every minute. 

- Nevin E. Adams, JD

 

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[i] Though their followings seem to be pretty modest, and their messages pretty superficial.