Category Archives: 2020-02

The New Fiduciary Rule (40): Rollovers and the Insurance License Issue


2020-02, 84-24, DOL, fiduciary, prohibited transaction, rollovers
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Key Takeaways

  • The DOL’s fiduciary regulation will be effective on September 23 of this year. As a result, beginning on September 23 one-time recommendations to retirement investors can be fiduciary advice and, where the advice is conflicted, the protection afforded by a prohibited transaction exemption will be needed.
  • A “one-time” rollover recommendation is a fiduciary act under the new rules.
  • The definition of investment advice in the regulation includes recommendations about “securities or other investment properly” which includes life insurance with an investment component and annuities.
  • Under both PTE 84-24 and PTE 2020-02, a compliant rollover recommendation generally requires the consideration of the investments, services and expenses in the retirement plan.
  • As a result, the question has been raised about whether an insurance-licensed only insurance agent can legally “consider” a plan’s investments, as is required by the PTEs.

The Department of Labor’s final regulation defining fiduciary status for investment advice to retirement investors will be effective this September 23. Where a fiduciary recommendation results in additional compensation for the fiduciary, that conflicted compensation is prohibited under ERISA, the Internal Revenue Code, or both. As a result, the relief provided by an exemption from the prohibited transaction rules will be needed.

Parts of the two applicable exemptions, Prohibited Transaction Exemptions (PTEs) 2020-02 and 84-24 will also be effective on September 23, 2024, but other parts will not be effective until a year later—September 23, 2025. The split effective dates for the PTEs are as follows. The Impartial Conduct Standards and the Fiduciary Acknowledgment disclosure are effective September 23, 2024—this year. The remaining conditions in the PTEs are effective on September 23, 2025. That includes all of the remaining disclosures, the policies and procedures, and the annual retrospective review.

Both PTEs require that, to obtain their relief, the Care Obligation—which is part of the Impartial Conduct Standards– must be satisfied. The requirements for satisfying the Care Obligation for recommendations to rollover from an ERISA retirement plan to an IRA (individual retirement account or individual retirement annuity) are virtually identical. Here’s what PTE 84-24 says in the context of independent insurance agents (called “independent producers” by the DOL):

Rollover disclosure. Before engaging in or recommending that a Retirement Investor engage in a rollover from a Plan that is covered by Title I of ERISA or making a recommendation to a Plan participant or beneficiary as to the post-rollover investment of assets currently held in a Plan that is covered by Title I of ERISA, the Independent Producer must consider and document the bases for its recommendation to engage in the rollover, and must provide that documentation to both the Retirement Investor and to the Insurer. Relevant factors to consider must include to the extent applicable, but in any event are not limited to: 

  1. the alternatives to a rollover, including leaving the money in the Plan, if applicable; 
  2. the fees and expenses associated with the Plan and the recommended investment; 
  3. whether an employer or other party pays for some or all of the Plan’s administrative expenses; and 
  4. the different levels of fiduciary protection, services, and investments available. (The emphasis is mine.)

The reference to considering the available investments has caused some observers to question whether an agent who is only licensed to sell non-securities insurance products can legally perform that task. That question was asked of the DOL in comments to the proposed exemption, and answered by the DOL in the preamble to the final PTE:

Another commenter characterized the condition as potentially requiring Independent Producers to violate the law, because as described by the commenter Federal securities laws prohibit individuals from recommending or providing detailed information or advice about securities unless they have a securities license. Thus, according to the commenter, Independent Producers who do not have a securities license (as most do not) would be forced to either break the law to comply with this condition or undertake the expense and burden of obtaining the appropriate securities licenses.

The Department of Labor responded in the preamble and disagreed with the commenter’s description of what was required for the “consideration:”

The Department disagrees with this characterization of the exemption condition. While Independent Producers are required to consider alternatives to the rollover from the Title I Plan into an annuity, they are not required to recommend or provide detailed information or advice about securities. Nothing in the exemption requires or suggests that Independent Producers are obligated to make advice recommendations as to investment products they are not qualified or legally permitted to recommend. The Department notes that nothing in the exemption or the Impartial Conduct Standards prohibits investment advice by “insurance-only” agents or requires such insurance specialists to render advice with respect to other categories of assets outside their specialty or expertise. There may be circumstances when the best advice an Independent Producer can give an investor is to bring in or work with another Investment Professional who can make a recommendation that is consistent with the Impartial Conduct Standards. A rollover recommendation should not be based solely on the Retirement Investor’s existing investment allocation without any consideration of other investment options in the Retirement Investor’s Title I Plan. The Independent Producer must carefully consider the options available to the investor, including options other than the Retirement Investor’s existing Plan investments, before recommending that the participant roll assets out of the Title I Plan. (The emphasis is mine.)

I don’t claim to have expertise on securities licensing/registration requirements or limits. However, this does raise the issue of how far can an agent go in the consideration of the securities (e.g., mutual funds) in a retirement plan generally and in a participant’s account specifically. If these rules are upheld by the courts, insurance companies and intermediaries (perhaps with additional guidance from the DOL) will need to educate independent producers on how to “consider” “the different… investments available” to the participant.

In one sense, there could be general considerations, such as liquidity, volatility, possible growth, and so on, that I would imagine could be done without a securities license. That could then be compared to the guaranteed income, and other features, of an annuity and a recommendation in the best interest of the participant could be made based on his or her needs and circumstances. The key is that the recommendation be personalized to the particular participant and the participant’s circumstances.

One part of the preamble language has been difficult for practitioners to interpret. It is the language: “There may be circumstances when the best advice an Independent Producer can give an investor is to bring in or work with another Investment Professional who can make a recommendation that is consistent with the Impartial Conduct Standards.” Some observers are concerned that the language might mean that an insurance producer should bring in a securities-licensed professional to help with the analysis. If it does mean that, it may be unrealistic. On the other hand, if it instead suggests that a best interest recommendation could, in some cases, be that part of the rollover could prudently be invested in an annuity and the remaining part could prudently be invested in a securities-based IRA (e.g., to provide some guaranteed income and some liquidity) that could be viewed as more possible.

Concluding Thoughts

As I advise clients, including insurance companies, on compliance with the new rules, and as the rules are applied to real world scenarios, there are questions without answers…or, perhaps better put, there are questions that the rules don’t directly address and therefore reasonable answers have to be developed. One example of that is the process for recommending guaranteed income products (e.g., individual retirement annuities) where the source of funds is in mutual funds and collective investment trusts in retirement plans. Hopefully, the DOL will provide helpful guidance in the future. However, that is unlikely until the current litigation against the rules is resolved.

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The New Fiduciary Rule (39): Qualified Annuity Exchanges


2020-02, 84-24, DOL, fiduciary, prohibited transaction
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Key Takeaways

  • The DOL’s fiduciary regulation will be effective on September 23 of this year. As a result, beginning on September 23 one-time recommendations to retirement investors can be fiduciary advice and, where the advice is conflicted, the protection afforded by a prohibited transaction exemption will be needed.
  • While some of the requirements (called “conditions”) of PTEs 2020-02 and 84-24 also become effective on September 23, others will not be effective until a full year later…September 23, 2025.
  • The PTE conditions that are effective this September are the Impartial Conduct Standards and the fiduciary acknowledgment disclosure.
  • Both PTE’s treat recommendations to exchange qualified annuities as covered recommendations.
  • This article discusses the requirements in NAIC Model Regulation #275 and the similarities and differences between the Model Rule and the PTE requirements.

The Department of Labor has issued the:

  • final regulation defining fiduciary status for investment advice to retirement investors and
  • related exemptions for prohibited conflicts—PTEs 2020-02 and 84-24.

The exemptions provide relief from prohibited compensation resulting from fiduciary recommendations to “retirement investors”—private sector retirement plans, participants in those plans (including rollover recommendations), and IRAs—individual retirement accounts and individual retirement annuities (including recommendations of transfers and exchanges).

The fiduciary regulation will be effective on September 23, 2024. Parts of the PTEs will be effective on that date, but other parts will not be effective until a year later—September 23, 2025.

The split effective dates for the PTEs are as follows. The Impartial Conduct Standards and the Fiduciary Acknowledgment disclosure are effective September 23, 2024—this year. The remaining conditions in the PTEs are effective on September 23, 2025. That includes all of the remaining disclosures, the policies and procedures, and the annual retrospective review.

A fiduciary recommendation to exchange “qualified annuities” is subject to the new rules. The authority for that conclusion can be found in the regulation’s descriptions of covered recommendations. (“Qualified annuities” is an industry term; the DOL refers to them as IRAs—”individual retirement annuities”, which is also how the Internal Revenue Code labels them.) The following recommendations are included in the description of covered transactions:

  • The advisability of acquiring, holding, disposing of, or exchanging, securities or other investment property.
  • Rolling over, transferring, or distributing assets from a plan or IRA, including recommendations as to whether to engage in the transaction, the amount, the form, and the destination of such a rollover, transfer, or distribution.

So it’s clear that recommending qualified annuity exchanges is subject to the fiduciary rules (beginning September 23, 2024) and I don’t think it requires explanation that the insurance agent’s commission is a conflict of interest that is a prohibited transaction.

That means that a PTE—prohibited transaction exemption—is needed. However, PTEs, including 84-24 and 2020-02, have conditions that must be satisfied in order to obtain the relief that they provide.  Both of those PTEs can provide relief for recommendations of annuity exchanges. The circumstances in which one or the other will apply are beyond the scope of this article—and have been discussed in other posts, but for purposes of today’s article, it doesn’t matter.  That’s because both require satisfaction of the Care Obligation.

That means that, since the fiduciary regulation and the Impartial Conduct Standards in the PTEs (where the Care Obligation is found) must be satisfied beginning this September 23. That begs the question of, what does the Care Obligation require for annuity exchanges?

Fortunately, there is some guidance in the NAIC Model Regulation—which has been adopted by almost all of the States (with some modifications)—that provides helpful, but not complete, information about the process for evaluating annuity exchanges.

For example, the NAIC Model Regulation says, in part:

The requirements under Subparagraph (a) of this paragraph require a producer to consider the types of products the producer is authorized and licensed to recommend or sell that address the consumer’s financial situation, insurance needs and financial objectives. This does not require analysis or consideration of any products outside the authority and license of the producer or other possible alternative products or strategies available in the market at the time of the recommendation.

Comment: The Care Obligation would also require that.  However, it is not clear if the Care Obligation would also require that, if the annuities available to the producer were inferior to others in the marketplace, the producer would need to decline the sales opportunity. (The NAIC Model Regulation uses the term “producer,” as does PTE 84-24. This article is using “producer” and “agent” interchangeably.)

At another point, the NAIC Model Regulation says:

The consumer profile information, characteristics of the insurer, and product costs, rates, benefits and features are those factors generally relevant in making a determination whether an annuity effectively addresses the consumer’s financial situation, insurance needs and financial objectives, but the level of importance of each factor under the care obligation of this paragraph may vary depending on the facts and circumstances of a particular case. However, each factor may not be considered in isolation.

Comment: This is similar to what the Care Obligation would require. However, satisfaction of the DOL’s Care Obligation would be measured by the standard of a hypothetical knowledgeable person, while the NAIC’s standard is that of someone with similar licensure.  It’s not clear if the DOL standard is higher than the NAIC’s, but it is possible since the DOL’s standard could be interpreted to include a broader range of knowledge of products and services that might be in the best interest of the retirement investor.

Later in the NAIC Model Regulation, it says:

In the case of an exchange or replacement of an annuity, the producer shall consider the whole transaction, which includes taking into consideration whether:  

(i) The consumer will incur a surrender charge, be subject to the commencement of a new surrender period, lose existing benefits, such as death, living or other contractual benefits, or be subject to increased fees, investment advisory fees or charges for riders and similar product enhancements;  

(ii) The replacing product would substantially benefit the consumer in comparison to the replaced product over the life of the product; and  

(iii) The consumer has had another annuity exchange or replacement and, in particular, an exchange or replacement within the preceding 60 months.

Comment: The Care Obligation would almost certainly be interpreted to be consistent with this.  Interestingly, the NAIC Model Regulation requires some comparison with the existing qualified annuity before recommending a replacement.  However, it does not require a similar analysis before recommending a rollover from a retirement plan to a qualified annuity (as do the SEC and the DOL rules).

There is a related disclosure requirement in the NAIC Model Rule that has some relevancy to our discussion:

Prior to or at the time of the recommendation or sale of an annuity, the producer shall have a reasonable basis to believe the consumer has been informed of various features of the annuity, such as the potential surrender period and surrender charge, potential tax penalty if the consumer sells, exchanges, surrenders or annuitizes the annuity, mortality and expense fees, investment advisory fees, any annual fees, potential charges for and features of riders or other options of the annuity, limitations on interest returns, potential changes in non-guaranteed elements of the annuity, insurance and investment components and market risk. 

Comment: To the extent that any of these factors weren’t required to be considered by the NAIC rules discussed earlier in this article, I believe that the DOL’s Care Obligation would require that a producer consider them in making a fiduciary recommendation—as opposed to just disclosing them.

Concluding Thoughts

The requirements in the NAIC Model Regulation are consistent with satisfaction of the Care Obligation in PTEs 84-24 and 2020-02.  However, in a given case they may not be enough.  As a result, thought should be given to augmenting the NAIC compliance process with additional considerations for the PTE’s best interest process.

Viewing the PTEs from the perspective of producers, the Impartial Conduct Standards and the Fiduciary Acknowledgement are effective for them on September 23 of this year.

With regard to the requirements for documentation, supervision, disclosures, and policies and procedures, the firms (e.g., insurance companies and broker-dealers) will not need to have those in place until September 23 of 2025.

However, that is not the full story for all of the firms.  Where the qualified annuity exchanges must use PTE 2020-02 for relief, the firms are “co-fiduciaries” with the agents this September 23.  That means that the firms must satisfy the Care Obligation and deliver the Fiduciary Acknowledgement.  And to satisfy the Care Obligation, the firms will likely need a process that is more demanding than the NAIC Model Regulation’s.

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The New Fiduciary Rule (38):The Fiduciary Acknowledgment


2020-02, 84-24, DOL, fiduciary, prohibited transaction
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Key Takeaways

  • The DOL’s fiduciary regulation will be effective on September 23 of this year. As a result, beginning on September 23 one-time recommendations to retirement investors can be fiduciary advice and, where the advice is conflicted, the protection afforded by a prohibited transaction exemption will be needed.
  • While some of the requirements (called “conditions”) of PTEs 2020-02 and 84-24 also become effective on September 23, others will not be effective until a full year later…September 23, 2025.
  • The PTE conditions that are effective this September are the Impartial Conduct Standards and the fiduciary acknowledgment disclosure.
  • This article discusses the fiduciary acknowledgment.

The Department of Labor has issued its final regulation defining fiduciary status for investment advice to retirement investors and the related exemptions for prohibited conflicts—PTEs 2020-02 and 84-24. The exemptions provide relief from prohibited compensation resulting from fiduciary recommendations to “retirement investors”—private sector retirement plans, participants in those plans (including rollover recommendations), and IRAs (including recommendations of transfers and exchanges).

The fiduciary regulation will be effective on September 23, 2024. Parts of the PTEs will be effective on that date, but other parts will not be effective until a year later—September 23, 2025.

Continue reading The New Fiduciary Rule (38):The Fiduciary Acknowledgment →

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The New Fiduciary Rule (37): Confusion about Incentive Compensation


2020-02, 84-24, DOL, fiduciary, prohibited transaction
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Key Takeaways

    • The DOL’s fiduciary regulation will be effective on September 23 of this year. As a result, beginning on September 23 one-time recommendations to retirement investors can be fiduciary advice and, where the advice is conflicted, the protection afforded by a prohibited transaction exemption will be needed.
    • While some of the requirements (called “conditions”) of PTEs 2020-02 and 84-24 also become effective on September 23, others will not be effective until a full year later…September 23, 2025.
    • The PTE that may be used in all cases, and must be used in most cases, is PTE 2020-02. However, independent insurance agents may use PTE 84-24.
    • Both PTEs have provisions limiting incentive compensation.

The Department of Labor has issued its final regulation defining fiduciary status for investment advice to retirement investors and the related exemptions for prohibited conflicts—PTEs 2020-02 and 84-24. The exemptions provide relief from prohibited compensation resulting from fiduciary recommendations to “retirement investors”—private sector retirement plans, participants in those plans (including rollover recommendations), and IRAs (including recommendations of transfers and exchanges). The fiduciary regulation will be effective on September 23, 2024. Parts of the PTEs will be effective on that date, but other parts will not be effective until a year later—September 23, 2025.

The split effective dates for the PTEs are as follows. The Impartial Conduct Standards and the Fiduciary Acknowledgement disclosure are effective September 23, 2024—this year. The remaining conditions in the PTEs are effective on September 23, 2025. That includes all of the remaining disclosures, the policies and procedures, and the annual retrospective review.

Continue reading The New Fiduciary Rule (37): Confusion about Incentive Compensation →

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The New Fiduciary Rule (36): Confusion about Annual Retrospective Reviews


2020-02, 84-24, DOL, fiduciary, prohibited transaction
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Key Takeaways

  • The DOL’s fiduciary regulation will be effective on September 23 of this year. As a result, beginning on September 23 one-time recommendations to retirement investors can be fiduciary advice and, where the advice is conflicted, the protection afforded by a prohibited transaction exemption will be needed.
  • While some of the requirements (called “conditions”) of PTEs 2020-02 and 84-24 also become effective on September 23, others will not be effective until a full year later…September 23, 2025.
  • The PTE that may be used in all cases, and must be used in most cases, is PTE 2020-02. However, independent insurance agents may use PTE 84-24.

The Department of Labor has issued its final regulation defining fiduciary status for investment advice to retirement investors and the related exemptions for prohibited conflicts—PTE 2020-02 and 84-24. The exemptions provide relief from prohibited compensation resulting from fiduciary recommendations to “retirement investors”–private sector retirement plans, participants in those plans (including rollover recommendations), and IRAs (including recommendations of transfers and exchanges). The fiduciary regulation will be effective on September 23, 2024. Parts of the PTEs will be effective on that date, but other parts will not be effective until a year later—September 23, 2025.

Unfortunately, that “split” of the effective dates has created a considerable amount of confusion about what needs to be done and when it needs to be done.

Continue reading The New Fiduciary Rule (36): Confusion about Annual Retrospective Reviews →

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The New Fiduciary Rule (32): The DOL’s Final PTE 2020-02


2020-02, DOL, fiduciary, investment adviser
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Key Takeaways

  • The DOL’s fiduciary regulation will be effective on September 23 of this year. As a result, beginning on September 23 one-time recommendations to retirement investors can be fiduciary advice and, where the advice is conflicted, the investment professional and financial institution will need the protection afforded by a PTE.
  • While some of the requirements (called “conditions”) of PTEs 2020-02 and 84-24 also become effective on September 23, others will not be effective until a full year later…September 23, 2025.
  • The PTE that must be used for all investment professionals and financial institutions—other than for independent insurance agents—is PTE 2020-02.
  • As a result, financial institutions need to be working on implementing the first part of the PTE’s requirements…so that compliant practices and disclosures are in place by September 23—just months from now.

On April 25, 2024, the Department of Labor published its final regulation defining fiduciary status for investment advice and the related exemptions—PTE 2020-02 and 84-24. The exemptions provide relief from prohibited conflicts and compensation resulting from fiduciary recommendations to “retirement investors”–private sector retirement plans, participants (including rollovers), and IRAs (including transfers and exchanges). The fiduciary regulation and exemptions will be effective on September 23, 2024, although compliance with some of the conditions in the exemptions will be further delayed.

Let’s look at the final of PTE 2020-02 and its effective dates.

Continue reading The New Fiduciary Rule (32): The DOL’s Final PTE 2020-02 →

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The New Fiduciary Rule (29): The Final Rules Have Arrived


2020-02, 84-24, DOL, fiduciary
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Key Takeaways

  • The final versions of the DOL’s fiduciary regulation and the amended PTEs have been published in the Federal Register.
  • The regulation and exemptions will be effective and applicable on September 23 of this year.
  • However, some of the requirements (called “conditions”) of Prohibited Transaction Exemptions (PTEs) 2020-02 and 84-24 will not be effective until September 23, 2025.
  • As a result, broker-dealers, investment advisers, banks and insurance companies need to begin the work on compliance…so that compliant practices and disclosures are in place by September 23—just months from now.

On April 25, 2024, the Department of Labor published its final regulation on fiduciary advice, and the related exemptions, in the Federal Register. The regulation defines fiduciary investment advice and the exemptions provide relief from prohibited conflicts and compensation resulting from fiduciary recommendations to private sector retirement plans, participants (including rollovers), and IRAs (including transfers and exchanges). The fiduciary regulation and exemptions will be effective 150 days after publication, which is September 23, 2024, although compliance with some of the conditions in the exemptions will be further delayed.

Continue reading The New Fiduciary Rule (29): The Final Rules Have Arrived →

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The New Fiduciary Rule (28): Coming Attractions—The Final Fiduciary Rules Are on the Horizon


2020-02, 84-24, DOL, fiduciary, investment adviser
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In November 2023, the U.S. Department of Labor released its package of proposed changes to the regulation defining fiduciary advice and to the exemptions for conflicts and compensation for investment recommendations to retirement plans, participants (including rollovers), and IRAs (including transfers). On March 8, 2024, the DOL sent the final rule to the Office of Management and Budget in the White House. On April 10 the OMB completed its review of the final rules. The next step is for the rules to be published in the Federal Register.

Key Takeaways

  • The final versions of the DOL’s fiduciary regulation and the amended PTEs have been reviewed by the Office of Management and Budget (OMB) in the White House—the final step in the approval process.
  • Now that the OMB has completed its part, the DOL will start the process for publishing the final rules in the Federal Register. The publication will likely be in the next two to three weeks.
  • Sixty days after publication, the final rules will be effective.
  • However, it is not clear if they will be applicable at the same time. There may be a delayed applicability date.

In November of 2023, the DOL proposed amendments to the regulation that defines when a person becomes a fiduciary by virtue of making “investment” recommendations to “retirement investors.”

I put the apostrophes around “investment” because the term, as used in the regulation, includes a range of services and types of properties. And I did the same with “retirement investors” because it is a defined term—private sector retirement plans, participants in those plans, and IRA owners.

Continue reading The New Fiduciary Rule (28): Coming Attractions—The Final Fiduciary Rules Are on the Horizon →

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The New Fiduciary Rule (26): Changes to PTE 2020-02 (1): Affecting the Advisor


2020-02, fiduciary, investment adviser, prohibited transaction, rollovers
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In November 2023, the U.S. Department of Labor released its package of proposed changes to the regulation defining fiduciary advice and to the exemptions for conflicts and compensation for investment recommendations to retirement plans, participants (including rollovers), and IRAs (including transfers). On March 8, 2024, the DOL sent the final rule to the Office of Management and Budget in the White House.

Key Takeaways

  • The DOL’s proposed fiduciary regulation includes a new and expanded definition of when a person will become a fiduciary under ERISA and the Internal Revenue Code due to recommendations to retirement investors.
  • As a result, many more advisors and agents will be fiduciaries.
  • If a fiduciary recommendation to a retirement investor is conflicted, any resulting financial benefit will be prohibited under ERISA and the Code. In that case, to avoid the consequences of a prohibited transaction, it would be necessary to comply with the conditions of a prohibited transaction exemption (PTE)—most likely PTE 2020-02.
  • This article discusses the proposed changes to PTE 2020-02 that will affect individual advisors and agents. My next article will discuss the changes that affect the financial institutions.

The first, and current, version of Prohibited Transaction Exemption (PTE) 2020-02 was effective in December 2020. In November of 2023, the DOL proposed amendments to PTE 2020-02 in connection with its proposed regulation expanding the definition of fiduciary advice to retirement investors—private sector retirement plans, participants in those plans, and IRA owners.

The proposed regulation will cause many more people and firms to be fiduciaries when they make “investment” recommendations to retirement investors. (I put the apostrophes around investment because the term, as used in the regulation, includes a range of services and types of properties.)

Continue reading The New Fiduciary Rule (26): Changes to PTE 2020-02 (1): Affecting the Advisor →

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The New Fiduciary Rule (25): Robo Advice and Robo Conflicts


2020-02, fiduciary, prohibited transaction
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In November 2023, the U.S. Department of Labor released its package of proposed changes to the regulation defining fiduciary advice and to the exemptions for conflicts and compensation for investment recommendations to retirement plans, participants (including rollovers), and IRAs (including transfers). On March 8, 2024, the DOL sent the final rule to the Office of Management and Budget in the White House.

Key Takeaways

  • The DOL’s proposals make it clear that robo advice, both “hybrid” and “pure”, can be fiduciary advice, subject to the provisions of ERISA and the Internal Revenue Code.
  • When pure robo advice (no human directly involved) or hybrid robo advice is given, if it satisfies the regulatory definition of fiduciary advice, the financial institution will be a fiduciary under ERISA (if to an ERISA plan or a participant in such a plan) and subject to ERISA’s duties of prudence and loyalty.
  • If robo advice generates a fiduciary recommendation that is conflicted, the conflicted amount (e.g., commissions, management fees) will be a prohibited transaction under ERISA and the Code, which would necessitate compliance with the conditions of a prohibited transaction exemption (PTE).
  • This article discusses robo advice under PTE 2020-02.

Under the current PTE 2020-02, the exemptive relief is not extended to “pure” robo-advisers. Instead, only “hybrid” robo-advisers can provide nondiscretionary fiduciary advice to retirement investors where the advice is conflicted (e.g., proprietary investments, revenue sharing, commissions). However, when the proposed amendments to the PTE become final and applicable, compensation resulting from conflicted nondiscretionary advice will be permitted if the conditions of the exemption are satisfied.

Continue reading The New Fiduciary Rule (25): Robo Advice and Robo Conflicts →

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