Category: prohibited transaction


Interesting Angles on the DOL’s Fiduciary Rule #12

Posted on July 14, 2016, by Fred Reish in DOL Activity, fiduciary, prohibited transaction. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #12

This is my twelfth article about interesting observations “hidden” in the fiduciary regulation and the exemptions.

The DOL has long taken the position that the recommendation of a discretionary investment manager is a fiduciary act. (At least one court has adopted that position – in a case involving investments with Madoff.)

While I am not aware of any guidance or litigation about potential prohibited transactions because of payments to persons who recommend investment managers (e.g., solicitor’s fees), from a legal perspective, if the person making the referral is a fiduciary and that person receives a fee, it may be a prohibited transaction under ERISA and the Internal Revenue Code.

To further complicate matters, when the new fiduciary rule becomes applicable on April 10, 2017, the definition of “fiduciary” will cover someone who makes referrals to both discretionary investment managers and non-discretionary investment advisers … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #10

Posted on June 21, 2016, by Fred Reish in DOL Activity, fiduciary, prohibited transaction, Uncategorized. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #10

This is my tenth article about interesting observations “hidden” in the fiduciary regulation and the exemptions.

When the new fiduciary advice regulation is applicable on April 10, 2017, a recommendation to a participant to take a distribution and rollover to an IRA will be a fiduciary act. It doesn’t matter if the adviser has a pre-existing relationship with the plan or the participant, or not.

Some RIA firms and broker-dealers focused on a similar issue when FINRA issued its Regulatory Notice 13-45 in late 2013. As that notice explained, distribution recommendations are investment recommendations (and thus, in the case of FINRA, are subject to the suitability standard), but distribution education is not an investment recommendation. To avoid the additional compliance work (and possibly prohibited transactions), many RIA firms and broker-dealers adopted a distributions education approach using 13-45 as the model. While the … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #6

Posted on May 24, 2016, by Fred Reish in DOL Activity, fiduciary, prohibited transaction, prudent, Uncategorized. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #6

This is my sixth article about interesting observations “hidden” in the preambles to the fiduciary regulation and the exemptions.

In some cases, the concerns about the scope of the fiduciary rule are overblown. For example, there have been some statements that advice about minimum required distributions for IRAs would be fiduciary advice. That is not the case.

In the preamble to the fiduciary regulation, the DOL explained:

“With respect to the tax code provisions regarding required minimum distributions, the Department agrees with commenters that merely advising a participant or IRA owner that certain distributions are required by tax law would not constitute investment advice. Whether such “tax” advice is accompanied by a recommendation that constitutes “investment advice” would depend on the particular facts and circumstances involved.”

So, basic advice about tax requirements and consequences is not fiduciary advice. However, if the adviser recommends which … Read More »


An Overview of the Fiduciary Rule

Posted on April 14, 2016, by Fred Reish in BICE, DOL Activity, fiduciary, prohibited transaction, Uncategorized. Comments Off on An Overview of the Fiduciary Rule

The DOL’s fiduciary rule has been published in the Federal Register. Based on our review of the regulation and conversations with our clients, here are some overview thoughts about the regulation and the two “distribution” exemptions (84-24 and BICE).

The Fiduciary Definition

The rule is much as expected. The definition of fiduciary advice continues to be very broad, capturing almost all common sales practices for investments and insurance products. It includes investment recommendations to plans, participants and IRA owners, as well as recommendations about distributions from plans and transfers and withdrawals of IRAs. All of those will be fiduciary activities.

As a result, those recommendations will be subject to the fiduciary standard when made to plans or participants, and subject to the Best Interest standard of care when made to IRA owners (if the adviser needs the prohibited transaction relief provided in … Read More »


More Thoughts on Distributions and Rollovers

Posted on April 1, 2016, by Fred Reish in DOL Activity, fiduciary, prohibited transaction. Comments Off on More Thoughts on Distributions and Rollovers

After my last post, I was asked another question about distributions and rollovers under the DOL’s proposed fiduciary regulation. Here’s the question and my answer:

Question: One thing I have heard is that all IRA Rollovers will fall under the DOL ERISA fiduciary standards with this rule.  Have you heard that?  Or, would all IRA Rollovers be covered under the new fiduciary definition, but not necessarily be ERISA covered?

Answer:  That’s generally correct, but it’s more complicated than that.

For ERISA tax-qualified plans, under the new rules a recommendation to take a distribution from a plan will be fiduciary advice subject to the prudent man rule and a duty of loyalty to the participant. And, the process must comply with the fiduciary prohibited transaction rules. That means that a fiduciary adviser can’t earn more from the rollover IRA than the adviser was earning … Read More »


Distribution and Rollover Education

Posted on March 28, 2016, by Fred Reish in DOL Activity, Plan Sponsors, prohibited transaction, prudent. Comments Off on Distribution and Rollover Education

A reporter recently asked me to explain why people are saying that, under the DOL’s fiduciary proposal, an adviser should not recommend that a participant take a distribution and roll over to an IRA, but instead should provide distribution education. Here’s my answer:

There are two issues.

The first is that the recommendation to take a distribution must be in the best interest of the participant. That is, it must be a prudent recommendation and it must be done with a duty of loyalty to the participant.  In order to make a prudent recommendation, the adviser needs to investigate the relevant factors that a knowledgeable person would want to know to make that decision.  Some of those factors are:  the investment expenses in the plan as opposed to those in an IRA; the costs for advice in the plan versus those in … Read More »


What Was Hot in the Second Quarter of 2015

Posted on July 28, 2015, by Fred Reish in DOL Activity, fiduciary, prohibited transaction. Comments Off on What Was Hot in the Second Quarter of 2015

In April, I wrote that the “hot” issues on my desk for the first quarter were: the prospect of the DOL’s fiduciary proposal; allocation of revenue sharing in 401(k) plans; and capturing of rollovers from retirement plans.

Those continued to be the top issues in the second quarter. In fact, two of the issues “merged” in the sense that the hottest issue in the fiduciary proposal is distributions from retirement plans and the capturing of rollovers.

With that in mind, here is a brief description of the hot issues in the second quarter:

By the end of June, most people were at least generally familiar with the fiduciary “package,” including the proposal to expand the definition of fiduciary advice and the two prohibited transaction exemptions that apply to the “sales” process. With the July 21 deadline for comments rapidly approaching, the … Read More »


Impact of the DOL’s Fiduciary Proposal on Participant Investment Advice

Posted on July 22, 2015, by Fred Reish in DOL Activity, fiduciary, prohibited transaction. Comments Off on Impact of the DOL’s Fiduciary Proposal on Participant Investment Advice

This client alert, written by Fred Reish, Bruce Ashton, Brad Campbell, Joan Neri, and Josh Waldbeser, from the Drinker Biddle Employee Benefits and Executive Compensation Group, summarizes our conclusions about the impact on participant investment “recommendations” of the Department of Labor (DOL) proposal to expand the definition of fiduciary investment advice.  We also discuss the proposed “Best Interest Contract” Exemption (BICE) permitting financial institutions to receive variable and indirect compensation based on advisor recommendations.

The proposal would significantly impact broker-dealers in assisting participants.  (We use “advisors” to mean a broker-dealer’s registered representatives and/or investment advisor representatives where the firm is dual registered.  For the impact on independent RIAs, see RIA Alert; for the impact on sales of insurance products, see Insurance Products Alert.)

Here are our conclusions, and a link to our more in-depth analysis:

The proposal expands the definition of fiduciary investment advice by … Read More »


The Impact of the DOL’s Fiduciary Proposal on Sales of Insurance Products

Posted on July 9, 2015, by Fred Reish in DOL Activity, fiduciary, prohibited transaction. Comments Off on The Impact of the DOL’s Fiduciary Proposal on Sales of Insurance Products

This client alert, written by Fred Reish, Bruce Ashton, Brad Campbell, Joan Neri, and Josh Waldbeser, from the Drinker Biddle Employee Benefits and Executive Compensation Group, states our conclusions about the impact of the Department of Labor (DOL) proposal to expand the definition of fiduciary investment advice and to modify prohibited transaction (PT) exemptions on sales of insurance products to plans, participants and IRAs.

The proposal affects insurance agents, insurance brokers and pension consultants who receive commissions for selling insurance or annuity contracts to plans and IRAs. (We refer to them collectively as “Insurance Advisors.”) The DOL’s proposal materially expands the definition of fiduciary investment advice to include common investment sales practices. As a result, we use “sales” in this Alert to refer to fiduciary recommendations of insurance products.

Here are our conclusions along with the link to our more in-depth analysis:

Conclusion No. 1: PT … Read More »


ERISA Issues for Solicitor’s Fees

Posted on December 17, 2014, by Fred Reish in 408(b)(2), DOL Activity, fiduciary, prohibited transaction, Service Providers. Comments Off on ERISA Issues for Solicitor’s Fees

Not much has been written about ERISA considerations for referring investment managers to retirement plans . . . and the receipt of solicitor’s fees for a referral.

However, there are a host of legal issues.

First, the person making the referral is receiving “indirect” compensation (that is, the solicitor’s payment by the investment manager), which makes that person a “covered service provider” or “CSP.” As a CSP, he must make 408(b)(2) disclosures (i.e., services, status and compensation). The failure to make timely disclosures is a prohibited transaction.

Second, the compensation cannot be more than a reasonable amount . . . as measured by the value of the services to the plan. But, what if the CSP doesn’t provide any ongoing services to the plan? Does the “compensation” become unreasonable after five years of payments? Ten years? I am not aware of any guidance … Read More »




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