Category: DOL Activity
This is the second of a new series of articles titled “The Bests.” This series focuses on Best Interest and Best Practices. Those topics will give me flexibility to talk about a range of subjects that affect both service providers, including advisors, and plan sponsors, including 401(k) committees.
In my last post, I discuss the remarkable similarities among the SEC’s proposed Regulation Best Interest, the SEC’s proposed Interpretation for investment advisors, the DOL’s Best Interest standard of care (which is a combination of ERISA’s prudent man rule and duty of loyalty), and the New York State Best Interest standard for sales of annuities and insurance products. All of those rules require that advisors act with care, skill, prudence and diligence, and that they place the interests of the investor ahead of their own.
In the first post, I conclude that the Best … Read More »
I recently testified before the Department of Labor’s ERISA Advisory Council on the subject of lifetime income. More specifically, it was about lifetime income products and services for retirees provided through defined contribution plans. Here are my opening comments:
Thank you for this opportunity to testify.
I am Fred Reish, a partner in the law firm of Drinker, Biddle and Reath. However, this testimony is not on behalf of the firm, but instead represents the views of my partner, Bruce Ashton, and myself.
As a starting point, it is helpful to have a foundation for development of recommendations. For example, I suggest:
The conversation about defined contribution plans needs to increasingly and emphatically include retirement income.
Plan sponsors and participants need good quality, reasonably priced retirement income products and services.
Plan sponsors need clear, objective and implementable guidance on how to do that.
Participants need information, education … Read More »
Now that I have completed 100 articles about interesting Angles on birth –and death–of the DOL’s Fiduciary Rule, and the birth of an SEC best interest standard for broker-dealers and RIAs, I am going to start on a new series. The new series, rather than being titled “Angles,” will be called “The Bests.”
So, from now on, my articles—maybe the next 100—will focus on two “bests”—the SEC’s best interest standard and best practices for advisors and plan sponsors.
I figure that the SEC’s best interest rules will be developed and implemented over the next year or two, giving me a wealth of materials for new articles. But, I don’t want to be limited to that. I think that it’s important to talk about best practices for retirement plans and retiree investing and withdrawing, with a focus on helping participants to and through … Read More »
Investment Advisers and the SEC’s Interpretation of Their Duties: Part II
This is my 100th article about interesting observations—or “angles”—concerning the Department of Labor’s Fiduciary Rule and the SEC’s “best interest” proposals.
Part I of this post discussed the application of the SEC’s best interest standard to recommendations to participants to take distributions and rollover to IRAs. It also discussed the apparent requirement for a thoughtful and professional process to develop the recommendation. However, it reserved for this post, Part II, the factors to be considered in that process.
The RIA Interpretation lists a number of factors to consider in the best interest process. However, most of them apply to investment recommendations, rather than advice about distributions. But a few are helpful. For example, the costs of investments and services and consideration of the investor profile are relevant factors.
Under Reg BI, though, the … Read More »
Investment Advisers and the SEC’s Interpretation of Their Duties: Part I
This is my 99th article about interesting observations concerning the Department of Labor’s (DOL) Fiduciary Rule and the SEC’s “best interest” proposals.
The SEC labeled its interpretation of the standard of care for RIAs (the “RIA Interpretation”) as a proposal. However, in that proposal, the SEC explained that the RIA Interpretation was based on the SEC’s current understanding of the duties of investment advisers. More specifically, the SEC described the RIA Interpretation as reaffirming and clarifying the RIA fiduciary rule: “. . . we believe it would be appropriate and beneficial to address in one release and reaffirm—and in some cases clarify—certain aspects of the fiduciary duty that an investment adviser owes to its clients under section 206 of the Advisers Act.”
As a result, investment advisers should treat the RIA Interpretation … Read More »
Regulation Best Interest: Consideration of Cost and Compensation
This is my 98th article about interesting observations concerning the Department of Labor’s fiduciary rule and the SEC’s “best interest” proposals.
The SEC’s Regulation Best Interest (Reg BI) proposes a number of major changes to the governance of broker-dealers. For example, it imposes a best interest standard of care on recommendations of securities transactions and it requires that material conflicts of interest involving financial incentives be eliminated or, alternatively, disclosed and mitigated. Based on the SEC’s examples of mitigation, it appears “real” mitigation is expected and not just existing practices with more disclosure.
There are other significant changes. For example, there is an increased focus on the costs and compensation related to recommended securities transactions and investment strategies. The SEC’s discussion explains that:
“[O]ur proposed interpretation of the Care Obligation would make the cost … Read More »
Regulation Best Interest Recommendations by Broker-Dealers: Part 3
This is my 97th article about interesting observations concerning the Department of Labor’s (DOL) fiduciary rule and the SEC’s “best interest” proposals.
In my last two articles—Part 1 and Part 2 on this topic, I discussed the fact that proposed Reg BI and its best interest standard of care for broker-dealers did not apply to all of the recommendations made by broker-dealers. The proposed best interest standard for broker-dealers will apply only to securities transactions recommended to “retail customers.” (Reg BI defines a “retail customer” as “a person, or the legal representative of such person, who . . . uses the recommendation primarily for personal, family, or household purposes.”) I compared that to the SEC’s Interpretation for RIAs, which applies to all advice to all clients. This article gives examples of how the proposals … Read More »
Regulation Best Interest Recommendations by Broker-Dealers: Part 2
This is my 96th article about interesting observations concerning the Department of Labor’s (DOL) fiduciary rule and the SEC’s “best interest” proposals.
In my last post, I compared the proposed best interest standard of care for broker-dealers—the SEC’s Regulation Best Interest (“Reg BI”), and the SEC’s proposed Interpretation Regarding Standard of Conduct for Investment Advisers (“RIA Interpretation”). In that article, I focused on the types of recommendations that implicated the best interest standard of care. For broker-dealers, the best interest standard only applied to recommendations of securities transactions and securities strategies. However, for RIAs the best interest standard applies to all advice and recommendations.
This article focuses on the advice recipients, that is, which investors will be protected by the best interest standard of care if the advice is given by a broker-dealer or, alternatively, … Read More »
SEC Proposed Reg BI and Recommendations of Rollovers (Part 3)
This is my 94th article about interesting observations concerning the Department of Labor’s (DOL) fiduciary rule and exemptions and the SEC’s “best interest” proposals.
Part 1 of this series discussed the provisions in the SEC’s proposed Regulation Best Interest that would impose a best interest standard of care for rollover recommendations by broker-dealers and their registered representatives. (More specifically, the standard applies if the rollover recommendation involves securities transactions—which would ordinarily be the case for participant-directed plans.) Part 2 described some of the considerations for developing a best interest recommendation process.
This article—Part 3—describes the proposed requirement to “mitigate” the conflict of interest inherent in a rollover recommendation.
Since a broker-dealer and its representative would not, in most cases, receive any compensation if a participant does not roll over, there is, to use the … Read More »
SEC Proposed Reg BI and Recommendations of Rollovers (Part 2)
This is my 93rd article about interesting observations concerning the Department of Labor’s (DOL) fiduciary rule and exemptions and the SEC’s “best interest” proposals.
In my last post, I described the similarities between the SEC proposed Regulation Best Interest (Reg BI) and the DOL’s Fiduciary Rule (and especially the Best Interest Contract Exemption [BICE]) regarding recommendations to participants to take distributions and roll over into IRAs. The similarities include a best interest standard of care and the treatment of conflicts of interest. This article discusses the requirement of the best interest standard of care in Reg BI and compares it to the standard of care in BICE (and the requirements of FINRA Regulatory Notice 13-45). My next article—Part 3—will cover the conflict of interest issues.
In its discussion of recommendations about distributions and … Read More »