All posts by Fred Reish

SECURE Act and Guaranteed Income (Part 1)


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There are two parts of the SECURE Act that I believe will have the greatest impact on plan sponsors and service providers.

  • The first part includes the provisions on retirement income, including the safe harbor for selecting a guaranteed income provider, the ability to distribute guaranteed income investments if a plan no longer want to offer those products, and a new requirement to give participants projection of their retirement income.
  • The second impactful part is the authorization of Open MEPs (Multiple Employer Plans), which the law calls “PEPs” (or Pooled Employer Plans). That change will allow plans that can be adopted by multiple unrelated employers, transferring much of the fiduciary responsibility onto the sponsor of the PEP, which could be, g., a financial institution, a recordkeeper or an advisory firm.

This article discusses the fiduciary safe harbor for selecting the provider (e.g., insurance company) for a guaranteed retirement income product. The other provisions will be discussed in future articles.

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Best Interest Standard of Care for Advisors #21


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Regulation Best Interest: Rollover Recommendations and Mitigation of Advisor Incentives (Rollovers Part 7)

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.”

This is the 7th of my series of articles about rollover recommendations and rollover education under the SEC’s Regulation Best Interest and its Interpretation for Investment Advisers. (For the first six, see Best Interest for Advisors #’s 15, 16, 17, 18, 19 and 20.)

This article deals with the Reg BI requirement that broker-dealers mitigate the incentives that might induce their advisors to make rollover recommendations that are not in the best interest of participants. Specifically, that requirement (which applies on June 30, 2020) is:

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Best Interest Standard of Care for Advisors #18


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Regulation Best Interest: Rollover Recommendations for Investment Advisers (Rollovers 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 earlier posts (e.g., Best Interest for Advisors #15), I discussed the application of Reg BI, and its Best Interest Standard of Care, to rollover recommendations. However, the requirement to act in the best interest of a plan participant for rollover recommendations is not limited to broker-dealers; it also applies to investment advisers. That was explained in the SEC’s Interpretation Regarding Standard of Conduct for Investment Advisers, issued June 5, 2019 and effective on July 12, 2019.

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Best Interest Standard of Care for Advisors #16


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Regulation Best Interest: Education vs. Recommendation (Rollovers 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 #15, I discussed the “best interest” standard for broker-dealers and their advisors and how it applies to rollover recommendations. (Keep in mind that Reg BI doesn’t apply until June 30, 2020.)

Until then the suitability standard applies and it only covers recommendations that involve securities transactions, for example, recommendations to rollover from a 401(k) plan, which requires that a participant liquidate the securities in his 401(k) account. When Reg BI applies, all rollover recommendations from all plans (e.g., including pension plans—where the participant doesn’t liquidate investments in order to rollover and non-ERISA plans, such as government plans).

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Best Interest Standard of Care for Advisors #15


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Best Interest: Rollover Recommendations (Part I)

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.”

This article discusses how the Care Obligation in Reg BI applies to recommendations to roll over accounts in 401(k) plans to IRAs. When Reg BI applies, beginning June 30, 2020, rollover recommendations to participants in “workplace retirement plans” will be subject to the Best Interest standard.

It’s important to note, though, that Reg BI still permits education and information that stops short of being a recommendation. However, the education and information cannot be a disguised recommendation.

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Best Practices for Plan Sponsors #12


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Lessons Learned from Litigation (#5)—The Johns Hopkins Case

This is the twelfth in a series of articles about Best Practices for Plan Sponsors. To be clear, “best practices” are not the same as legal requirements. Instead, they are about better ways to manage retirement plans. In many cases, though, “best practices” also are good risk management tools because they should exceed legal standards, address areas of concern, or anticipate future developments as retirement plans and expectations evolve.

Plan sponsors should be aware of the latest trends in fiduciary litigation to help manage the risk of being sued and, if sued, the risk of being liable. In my past four plan sponsor posts, Best Practices for Plan Sponsors #8, #9, #10 and #11, I discussed the lessons learned from the conditions in the settlement agreements for the Anthem, Vanderbilt, BB&T and ABB cases. This article—about the Johns Hopkins settlement agreement—is another example of the importance of using appropriate share classes and the monitoring of compensation of service providers . . . and more.

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Best Interest Standard of Care for Advisors #12


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Regulation Best Interest: An Overview of the Changes.

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.”

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.

A starting point for understanding the requirements of Reg BI (which are applicable on June 30, 2020) is to compare it to existing standards, e.g., the suitability rule. In its release for the final regulation, the SEC did just that. Here it is in the SEC’s words (with my comments added):

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Best Interest Standard of Care for Advisors #10


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Regulation Best Interest: The Focus on Costs (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.”

______________________________________________________________________

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 my last article in this series, I pointed out that the SEC has explicitly included the consideration of costs in the text of Reg BI and stated that broker-dealers must consider costs for every recommendation (beginning on Reg BI’s compliance date of June 30, 2020). That doesn’t mean that the lowest-cost investment or investment strategy must be recommended (e.g., where the customer’s investment profile indicates that a more expensive alternative would be better serve the investor), but it does mean that costs must be part of that analysis, and that higher-cost alternatives must be justified by the retail customer’s investment profile. Picking up with where the last article left off, here is the SEC’s thinking:

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Best Practices for Plan Sponsors #11


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Lessons Learned from Litigation (#4)—The ABB Case

This is the eleventh in a series of articles about Best Practices for Plan Sponsors. To be clear, “best practices” are not the same as legal requirements. Instead, they are about better ways to manage retirement plans. In many cases, though, “best practices” also are good risk management tools because they should exceed legal standards, address areas of concern, or anticipate future developments as retirement plans and expectations evolve.

Plan sponsors should be aware of the latest trends in fiduciary litigation to help manage the risk of being sued and, if sued, the risk of being liable. In my past three plan sponsor posts, Best Practices for Plan Sponsors #8, #9, and #10, I discussed the lessons learned from the conditions in the settlement agreements for the Anthem, Vanderbilt and BB&T cases. This article—about the ABB settlement agreement—is another example of the importance of using appropriate share classes and the  monitoring of compensation of service providers . . . and more.

Continue reading Best Practices for Plan Sponsors #11 →

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Best Interest Standard of Care for Advisors #9


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Regulation Best Interest: The Focus on Costs (Part 1)

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.”

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. Reg BI also 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. In addition, 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.

The SEC’s release for the proposed Reg BI described “cost” as being a more important consideration than it is under the suitability standard. However, in the final Reg BI, the significance of “cost” was elevated even further. That was accomplished by moving “cost” from the release discussion to the actual regulation. In relevant part, the Reg BI Care Obligation now reads:

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