Tag Archives: Account Types

The New Fiduciary Rule (10): What is An Investment? (Part 2)

December 11, 2023
DOL, fiduciary, prohibited transaction
Account Types, insurance, investment, management, policies, proposed regulation, recommendation, securities, strategy

The U.S. Department of Labor has released its package of proposed changes to the regulation defining nondiscretionary fiduciary advice and to the exemptions for conflicts and compensation for investment recommendations to retirement plans, participants (including rollovers), and IRAs.

The proposed regulation redefines fiduciary status for “investment” recommendations. But what is an investment recommendation? The answer: More than you think.

Key Takeaways

The Department of Labor’s proposed fiduciary “package” includes new definitions of nondiscretionary fiduciary investment advice.
Of course, the application of the definition is based on a recommendation about investments and other property. The proposed regulation has an expansive definition of such a recommendation.
Broker-dealers, investment advisers, and insurance companies, and their representatives, need to understand the range of recommendations that are covered by the fiduciary standards.
That is particularly true (i) since one-time recommendations can result in fiduciary status and (ii) where the fiduciary investment recommendation involves a conflict of interest (e.g., a new fee or a commission), the firms and their representatives and agents will need to satisfy the conditions of either PTE 84-24 or PTE 2020-02.

This article begins a discussion of the definitions of investments and other property that, if recommended to a retirement investor (that is, a private sector qualified plan, participants in those plans, or IRA owners), will require satisfaction of the fiduciary standards and, in most cases, of the conditions of a prohibited transaction exemption.

Continue reading The New Fiduciary Rule (10): What is An Investment? (Part 2) →

Best Interest Standard of Care for Advisors #72: Compliance with PTE 2020-02: Factors to Evaluate for Recommendations to Change Account Types (Part 7 on FAQ 15)

November 9, 2021
2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, rollovers
Account Types, FAQ, financial institution, investment professional

This series focuses on the DOL’s new fiduciary “rule”, which was effective on February 16. This, and the next several, articles look at the Frequently Asked Questions (FAQs) issued by the DOL to explain the fiduciary definition and the exemption for conflicts of interest.

Key Takeaways

The DOL’s PTE 2020-02 and the expanded definition of fiduciary advice apply to “rollover” recommendations, which include plan-to-IRA rollovers, IRA-to-IRA transfers, plan-to-plan rollovers, IRA-to-plan rollovers, and changes of account types in retirement accounts.
For account-type changes (or “rollovers” in the PTE), the DOL give the example of transfers from commission-based accounts to fee-based arrangements. But that is just an example, and the language is much broader…”from one type of account to another (e.g., from a commission-based account to a fee-based account)”.
Unfortunately, neither the exemption nor the preamble provide further definition of “one type of account to another”. However, there is guidance elsewhere that might be helpful.
It is important that financial institutions understand what account types are contemplated by the DOL’s exemption, since covered recommendations will be subject to the conditions of the exemption, including the requirement to provide the retirement investor, in writing, with the specific reasons why the rollover (e.g., change of account type) is in the retirement investor’s best interest.

Background

The DOL’s prohibited transaction exemption (PTE) 2020-02 (Improving Investment Advice for Workers & Retirees), allows investment advisers, broker-dealers, banks, and insurance companies (“financial institutions”), and their representatives (“investment professionals”), to receive conflicted compensation resulting from non-discretionary fiduciary investment advice to ERISA retirement plans, participants and IRA owners (“retirement investors”). In addition, in the preamble to the PTE the DOL announced an expanded definition of fiduciary advice, meaning that many more financial institutions and investment professionals will be fiduciaries for their recommendations to retirement investors and, therefore, will need the protection provided by the exemption.

Continue reading Best Interest Standard of Care for Advisors #72: Compliance with PTE 2020-02: Factors to Evaluate for Recommendations to Change Account Types (Part 7 on FAQ 15) →

Best Interest Standard of Care for Advisors #28

March 18, 2020
best interest, broker-dealers, reg BI, registered investment advisers, SEC
Account Types

Regulation Best Interest, RIA Interpretation and Consideration of “Account Types” (Part 4)

The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Rule, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”

In my last three posts (Best Interest for Advisors #25, #26 and #27), I have discussed the SEC guidance for broker-dealers and investment advisers about recommendations of “account types.” The articles explained that investment advisers are subject to the best interest standard for recommending account types (since July of last year) and broker-dealers will be subject to the new best interest rules for recommending account types beginning June 30 of this year. Those articles discussed the rule, the definition of account types, and the process required to evaluate account types. This article discusses examples given by the SEC about the application of the best interest standard when considering account types.

Continue reading Best Interest Standard of Care for Advisors #28 →

Best Interest Standard of Care for Advisors #14

October 25, 2019
best interest
Account Types, Care Obligation, IRA, rollover

Regulation Best Interest: Significant Changes from Proposal (Part 2)

The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Regulation, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”

In my last post, Best Interest for Advisors #13, I commented on the SEC’s discussion of the major changes in Reg BI from the proposal to the final regulation. This article continues that commentary, with a focus on what it means to act in the “best interest” of a retail customer. To quote from the adopting release of the final regulation:

Continue reading Best Interest Standard of Care for Advisors #14 →

Best Interest Standard of Care for Advisors #13

October 16, 2019
best interest, broker-dealers, reg BI
Account Types, Form CRS, monitor, rollovers

Regulation Best Interest: Significant Changes from Proposal (Part 1)

The SEC’s Reg BI establishes a best interest standard of care for investment recommendations to retail customers by broker-dealers and their registered representatives. In addition, Reg BI requires new disclosures and mitigation of advisor’s financial conflicts of interest. The SEC also issued an Interpretation of the Standard of Conduct for Investment Advisers, which clarified the SEC’s position on a number of issues related to the fiduciary standard and conflicts of interest for RIAs. There were two other pieces of guidance: the Form CRS Regulation (which requires a simplified front-end disclosure by broker-dealers and investment advisers); and the Solely Incidental Interpretation for limited discretion and monitoring of accounts by broker-dealers.

In the adopting release for the final Regulation Best Interest, the SEC explained some of the most significant changes from the proposal. Here are three of those changes with my comments:

Continue reading Best Interest Standard of Care for Advisors #13 →

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Tag Archives: Account Types

The New Fiduciary Rule (10): What is An Investment? (Part 2)

Key Takeaways

Best Interest Standard of Care for Advisors #72: Compliance with PTE 2020-02: Factors to Evaluate for Recommendations to Change Account Types (Part 7 on FAQ 15)

Key Takeaways

Background

Best Interest Standard of Care for Advisors #28

Regulation Best Interest, RIA Interpretation and Consideration of “Account Types” (Part 4)

Best Interest Standard of Care for Advisors #14

Regulation Best Interest: Significant Changes from Proposal (Part 2)

Best Interest Standard of Care for Advisors #13

Regulation Best Interest: Significant Changes from Proposal (Part 1)