Same Products, New Channel: How a New Rule Opens the 401(k) to Illiquid Alternatives.

LaughlinRE LLC  ·  Multifamily Advisory  ·  Northwest Arkansas

Private Markets · Distribution · Regulation · Investor Protection

Same Products, New Channel: How a New Rule Opens the 401(k) to Illiquid Alternatives.

A decade-long pattern of overselling, regulatory retreat, institutional reentry, and rising redemptions - and a question about what a new Trump administration rule does for retirement savers versus the firms trying to reach them.

By Paul Laughlin Jr.  ·  LaughlinRE LLC  ·  April 2026

If you have a 401(k), a financial advisor, or any savings parked with a brokerage firm, there is a category of investment that has been sold to retail investors for decades, under names like non-traded REITs (“NTRs”), non-traded BDCs (“BDCs”), interval funds, and perpetual vehicles - that you may never have heard of. That obscurity is partly by design. These products are complex, illiquid, and loaded with fees. They are also - for the firms that manufacture and distribute them - extraordinarily profitable for fund managers. Right now, a proposed federal rule published in the Federal Register on March 31, 2026 may be about to open the largest distribution channel these products have ever seen: the American retirement system.

To understand why that matters - and why it should give investors pause - it’s important to understand what happened the last time Wall Street tried to sell these products at scale. And the time before that. Because this story has repeated itself. Twice.

What Are These Products?

A Real Estate Investment Trust (REIT) is a company that owns income-producing real estate (apartments, office towers, hotels, warehouses, shopping centers, storage, etc...). Most REITs trade on public stock exchanges like the NYSE, where investors can buy and sell shares daily, just like a stock. A non-traded REIT does the same thing (it owns real estate) but its shares are not listed on any exchange. You can buy in relatively easily, but getting your money back requires waiting for a formal liquidity event:

·        The stockholder redemption queue (capped at 5% of outstanding shares per quarter);

·        The Company’s public listing (eg. The NYSE or NASDAQ);

·        A merger with another firm;

·        Or a sale of the portfolio.

And that can take seven to ten years. Sometimes it never comes on the timeline investors were told to expect.

A BDC is similar in structure but focused on lending to mid-sized private companies rather than owning real estate. Non-traded BDCs carry the same illiquidity profile. Both products have historically charged front-loaded sales commissions of 5% - 10%. A meaningful portion of the investor's capital goes to the salesperson before a single dollar is deployed into an actual investment.

For decades, these products were sold almost exclusively through independent broker-dealers and their financial advisors - largely to retail investors who were told they offered stable income, real estate or private credit exposure, and low correlation to the stock market. Many of those claims are true in the abstract.

What was less prominently disclosed was the fee structure, the illiquidity, and the fact that early distributions were often funded by return OF investor capital rather than actual investment income (return ON investor capital). In some cases, investors did not understand what they owned until they tried to get their money back.

The Boom, the Backlash, and the Retreat.

‍ Here is how this played out, year by year:

‍2013: Peak of the Boom. $20 Billion Raised.

Non-traded REIT fundraising reaches $20 Billion… its all-time high. Products were sold almost entirely through independent broker-dealers. Major wirehouses such as Morgan Stanley, Merrill Lynch, and UBS were largely absent. The sales pitch is “income, diversification, and real estate exposure;” and the fine print was “fees, illiquidity, and opaque valuations,” which was designed to be less prominent. Merrill Lynch became the first wirehouse to offer a NTR, selling a Jones Lang LaSalle product with a lower commission structure. Client uptake is modest.

‍2015–17: The Regulatory Hammer Falls.

‍FINRA cracked down on unsuitable sales practices across the industry. The Department of Labor proposed its fiduciary rule, raising questions about whether advisors could legally sell these products into retirement accounts at all. Ameriprise Financial Services was fined by the New Jersey Bureau of Securities for selling unsuitable NTRs and BDCs across more than 8,000 transactions between 2010 and 2015 - with findings of inadequate supervision throughout. Fundraising collapses from $20 billion to $4.2 billion by 2017. The lowest level in 15 years. The channel effectively shuts down.

‍2018–19: Blackstone Changes Everything.

‍Blackstone enters the NTR space aggressively with BREIT. Its institutional brand and NAV-based pricing give wirehouses the reputational cover they needed to reenter the market. Merrill Lynch, Morgan Stanley, and UBS all begin offering NTRs through their wealth management platforms. The product is rebranded: “perpetual, NAV-based, institutional-quality.” What retail investors had previously rejected - or been burned by - gets a new coat of paint and a new address on Fifth Avenue.

‍2021–25: The Second Boom: Morgan Stanley Goes Sponsor.

‍Capital flows into NTRs and BDCs reach record levels. Blackstone alone raises $24.9 billion dollars in NTR capital in 2024 – 68% of the entire sector's fundraising. In early 2024, Morgan Stanley registers its own NTR - North Haven Net REIT - becoming not just a distributor, but a product sponsor as well. The firm that once retreated from the market is now manufacturing the product. BDC capital formation reaches $63 billion in 2025 alone. A new all-time record.

‍2026: Redemptions Accelerate: The Pattern Re-Emerges.

‍BDC sales in January 2026 fall nearly 49% from their all-time monthly high of $6.2 billion set in March 2025. Robert A. Stanger forecasts a 45% year-over-year decline in nontraded BDC capital formation - explicitly comparing it to the 65% REIT collapse of 2022 - 2023.

‍Some listed BDCs begin cutting dividends. Clients are heading for the exits.

‍Meanwhile, a proposed federal rule quietly makes its way through the regulatory process that could reset the entire distribution equation permanently. The product gets rebranded. The fees get trimmed at the edges. The distribution channel shifts. But the underlying dynamic - illiquid assets sold to retail investors on the promise of stable income - stays constant. And the cycle begins again.

Now Enter the DOL Proposed Rule.

On March 31, 2026, the Department of Labor's Employee Benefits Security Administration published a 57-page proposed rule in the Federal Register. Its formal title: Fiduciary Duties in Selecting Designated Investment Alternatives (RIN 1210-AC38, 91 FR 16088). It was directed by President Trump's Executive Order 14330 titled, "Democratizing Access to Alternative Assets for 401(k) Investors." That framing tells us something about who this is designed to serve.

Right now, the rules governing what investments can be offered inside a 401(k) plan - and what standard applies to the advisor or plan sponsor who selects them - are murky when it comes to alternatives.

Illiquid products like NTRs and BDCs do not fit neatly into frameworks built around publicly traded stocks and bonds. That ambiguity has kept most plan sponsors and the RIAs who advise them away from alternatives in retirement plans entirely. The legal exposure of recommending an illiquid investment inside someone's retirement account - and then having a client suffer losses - has been nearly impossible to defend without a clear regulatory standard to point to. This rule attempts to build that standard.

The Six-Factor Safe Harbor.

The rule creates a process-based safe harbor built around six specific factors that a plan fiduciary must document and evaluate when selecting an investment for a 401(k) menu. Follow that process, document it thoroughly, and you receive a presumption of cautious judgment. Courts are instructed to defer to your judgment - not second-guess it in hindsight.

1.      Performance

2.      Fees

3.      Liquidity

4.      Valuation

5.      Benchmarking

6.      Complexity

The liquidity section is particularly revealing. The rule openly concedes that alternative assets are often less liquid than publicly traded stocks and bonds, and then makes a point that fundamentally reshapes the analysis: ERISA does not require employer‑sponsored retirement plans to offer fully liquid investment options. As a result, illiquid alternatives are explicitly permissible in 401(k) plans, so long as a fiduciary documents its process and ensures that the product can live up to whatever liquidity expectations are presented to participants. In practice, that means account owners may never be able to fully liquidate their investments - not even in retirement, when that income is needed.

‍The fees section is equally significant. The rule states that a fiduciary does not violate its duty of prudence solely because it did not select the lowest-fee option - as long as higher fees are justified by value - including performance, services, or other benefits to participants. That is a direct shield against the most common litigation theory used against plan sponsors who offer high-fee alternative products.

The rule's stated goal is to alleviate regulatory burdens and litigation risk that prevent American workers from accessing competitive returns. It does this by clarifying that ERISA gives fiduciaries - and not, in the rule's own words, "opportunistic trial lawyers" - the discretion to determine when alternatives are appropriate for plan participants.

Does This Rule Clear the Names of Ameriprise and Morgan Stanley? No. Not even close. And this distinction matters most.

Ameriprise was fined by New Jersey regulators in 2017 for violations such as unsuitable sales across 8,000 retail transactions; inadequate supervision; and clients who did not understand what they owned. These accounts were in retail brokerage accounts governed by FINRA suitability rules and state securities law. Not ERISA 401(k) plans.

This rule operates in an entirely different legal universe. ERISA governs employer-sponsored retirement plans. FINRA suitability rules and Regulation Best Interest (Reg BI) govern retail brokerage accounts. These are not the same problems, and this rule does not address what went wrong in the retail channel. It could not, even if it wanted to.

If Ameriprise had sold those same products inside a 401(k)-plan menu - following the six-factor documentation process this rule describes - would the outcome have been different? Possibly yes, for ERISA purposes. But the harm that regulators sanctioned was in individual retail accounts, sold advisor-to-client, with inadequate disclosure and inadequate supervision. That conduct remains fully exposed to FINRA enforcement, state securities regulators, and plaintiffs' attorneys regardless of what this rule says.

Two Different Legal Worlds

What happened to Ameriprise and Morgan Stanley: Retail suitability violations in individual brokerage accounts - governed by FINRA rules, Reg BI, and state securities law. This rule has no bearing on that liability.

What this rule governs: ERISA fiduciary duty in 401(k) plan investment menus. A completely separate legal framework. Process-based. Documentation-driven. Designed to reduce litigation risk for plan sponsors and advisors who offer alternatives in retirement plans.

The bottom line:The same firms that retreated from retail distribution due to client backlash now have a cleaner path to sell similar products into the retirement system. The legal exposure is different. The products are not.

Who benefits most: Large alternative asset managers seeking access to the estimated $12 trillion defined contribution market. Plan sponsors and RIAs deterred by liability ambiguity.

What This Rule Actually Does (and Doesn't Do):

‍ The rule creates a process standard, not an outcome guarantee. The fiduciary duty does not disappear — it gets defined. Liability shifts from, "Why did you offer this at all?" to "Did you follow the required process?" That is a lower bar for distribution, but it is still a bar. And following a checklist has never been the same thing as acting in a client's interest.

There is something worth noting about the timing. The rule was published on March 31, 2026 — as BDC redemptions are accelerating, as listed BDCs are cutting dividends, as Stanger is forecasting a 40% decline in NTR and BDC capital formation for the year. The retail channel is showing signs of strain. The 401(k) channel is being opened. Whether that sequencing is coincidence or strategy, I will leave to the reader.

‍The firms that stand to benefit most are the large alternative asset managers - Blackstone, Blue Owl, Ares, and KKR - who have been explicit for years about their ambitions to access defined contribution assets. The total value of defined contribution retirement assets in the United States is approximately $12 TRILLION dollars. Even a small allocation to alternatives would represent an enormous new source of capital and fee revenue for these managers. That is the market this executive order is designed to unlock. The rule is the mechanism.

I want to be honest that there is a legitimate case on the other side. If plan fiduciaries apply the 6 factors genuinely - evaluate performance net of fees; analyze liquidity against participant needs; use meaningful benchmarks; and assess complexity honestly - they may select better alternatives than the opaque, high-commission products that burned retail investors in the 2013 - 2017 cycle.

ERISA's institutional rigor, applied properly, could be better protection for retirement savers than the retail suitability framework ever was. That is optimistic reading. I hope it is right.

But here is the question I keep returning to:Is this rule protecting retirement savers by creating a clear standard for when alternatives are appropriate? Or is it primarily clearing the legal runway for the largest distribution expansion in the history of private markets, arriving precisely as the current retail cycle shows signs of exhaustion?

Tthe history I’ve described shows that clearer rules around how to sell these products has never reliably addressed the core concern about whether they should be sold to a given investor at a given time. The six-factor safe harbor does not change what a NTR or BDC fundamentally is - illiquid, fee-intensive, dependent on a future liquidity event that may or may not materialize on the timeline investors are told to expect. What changes is the liability landscape for the firms selling them. In my experience, when the liability landscape shifts in favor of distribution, distribution tends to follow. The cycle I described has now repeated itself twice in less than 15 years. If this rule passes as written, twelve trillion dollars in retirement savings becomes the next frontier.

‍I don't think the answer is obvious. But I think it's worth asking before the capital starts moving - and before another generation of investors learns the hard way what they actually own.

Paul Laughlin Jr. is the founder and principal of LaughlinRE LLC, a multifamily real estate advisory and consulting firm based in Northwest Arkansas. His background includes institutional asset management, CMBS research, distressed asset advisory, and prior work in non-traded REIT secondary markets and tender offer operations. He writes on private markets, alternative investment structures, capital allocation, and investor protection. Views expressed are his own and do not constitute legal or investment advice. Public comments on the proposed rule are due June 1, 2026 at regulations.gov.

‍ ‍

© 2026 LaughlinRE LLC  ·  laughlinre.com  ·  Bentonville, Arkansas

The Rule at a Glance

Citation: 91 FR 16088 · RIN 1210-AC38 · 29 CFR Part 2550

Published by: U.S. Dept. of Labor, Employee Benefits Security Administration

Directed by: Executive Order 14330 - "Democratizing Access to Alternative Assets for 401(k) Investors"