The Department of Labor’s Proposed Prohibited Transaction Exemption and its Impact on Recommendations to Plans, Participants and IRAs (Part 2)
Continue reading Best Interest Standard of Care for Advisors #37
Category Archives: best interest
In Case You Missed It: fredreish.com Popular Insights – Third Quarter 2020
Each calendar quarter, I post approximately 12 articles on my blog, fredreish.com. This quarterly digest provides links to the most popular posts during the past three months so that you can catch up on what you missed or re-read them.
MOST POPULAR INSIGHTS FOR THE THIRD QUARTER 2020
Continue reading In Case You Missed It: fredreish.com Popular Insights – Third Quarter 2020
Best Interest Standard of Care for Advisors #36
The Department of Labor’s Proposed Prohibited Transaction Exemption and its Impact on Recommendations to Plans, Participants and IRAs (Part 1)
On July 7, 2020 the DOL issued a proposed prohibited transaction exemption (PTE) that would allow conflicted recommendations resulting from nondiscretionary fiduciary investment advice. The proposal is titled “Improving Investment Advice for Workers & Retirees.” As background, an exemption is an exception to the prohibited transaction rules, but the exception is only available if its conditions are satisfied…and there are conditions.
Continue reading Best Interest Standard of Care for Advisors #36
Best Interest Standard of Care for Advisors #32
Regulation Best Interest: Best Interest and Suitability—How They Differ (Part 3)
Regulation Best Interest (Reg BI) imposes a “best interest” standard of care on broker-dealers for their recommendations of securities and investment strategies to retail customers. That raises the question, what does best interest mean and how does it differ from suitability?
(Note: While the discussion in this article is based on Reg BI’s best interest requirements for broker-dealers, the SEC has also imposed a best interest standard on investment advisers. As a result, investment advisers should also be attentive to these issues.)
As I explained in Parts 1 and 2 of this article (Best Interest Standard of Care for Advisors #30 and #31), the difference between best interest and suitability is a hard question without an easy answer. However, based on the SEC’s discussion in the Adopting Release, I have developed examples of where best interest appears to impose a more demanding standard than suitability. These examples focus on the Reg BI requirement that broker-dealers (and their registered representatives) consider costs in the development of recommendations. While costs are not the only factor to be considered, the SEC says that the best interest rule makes cost a more important factor than it was under the suitability standard.
Continue reading Best Interest Standard of Care for Advisors #32
Best Interest Standard of Care for Advisors #31
Regulation Best Interest: Best Interest and Suitability—How They Differ (Part 2)
Regulation Best Interest (Reg BI) imposes a “best interest” standard of care on broker-dealers for their recommendations of securities and investment strategies to retail customers. That raises the question, what does best interest mean and how does it differ from suitability?
While the discussion in this article is based on the Reg BI best interest requirements for broker-dealers, the SEC has also imposed a best interest standard on investment advisers. As a result, investment advisers should also be attentive to these issues.
Continue reading Best Interest Standard of Care for Advisors #31
Best Interest Standard of Care for Advisors #30
Regulation Best Interest: Best Interest and Suitability-How They Differ (Part 1)
Regulation Best Interest (Reg BI) imposes a “best interest” standard of care on broker-dealers for their recommendations of securities and investment strategies to retail customer. That raises the question, what does best interest mean and how does it differ from suitability? That’s a hard question without an easy answer. Even the SEC acknowledges in the adopting release for Reg BI that:
Continue reading Best Interest Standard of Care for Advisors #30
Best Interest Standard of Care for Advisors #29
Best Interest Standard and Recommendations of Rollovers and Withdrawals
On June 15, SEC Chairman Clayton issued a statement partially entitled: “Need for Increased Care when Recommending 401(k)/IRA Rollovers and Withdrawals . . .”. As that title suggests, the Chairman’s statement covers areas where the SEC will focus on recommendations when Reg BI applies on June 30. One of those areas of “increased care” is the recommendation of rollovers (and other withdrawals) from retirement plans.
The best interest standard for investment advisers became applicable last year. As a result, the Chairman’s statement already applies to rollover recommendations by investment advisers.
One part of the statement is entitled: “Areas Where Increased Care May be Necessary When Making Recommendations to Main Street Investors“. In that part, the statement says:
Continue reading Best Interest Standard of Care for Advisors #29
States Enact Good Samaritan Broker Laws
The aging of the Greatest Generation and the Baby Boomers is highlighting the difficulties resulting from the cognitive decline of the investors of those generations. The inability of some of those senior investors to understand and process financial information is inconsistent with our self-reliant investing culture, which is largely based on disclosures in lengthy documents. Part of the burden is being placed on advisors due to the new best interest standards for broker-dealers and insurance brokers and agents. In addition, the SEC has heightened the expectations of the existing best interest standard for investment advisers. In addition to the burdens, there are also opportunities for advisors to help protect senior investors from financial abuse.
Best Interest Standard of Care for Advisors #28
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 #27
Regulation Best Interest, RIA Interpretation and Consideration of “Account Types” (Part 3)
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.”
Regulation Best Interest (Reg BI) and the Interpretation Regarding Standard of Conduct for Investment Advisers (RIA Interpretation) require that broker-dealers and investment advisers evaluate the “account types” their firms offer—in light of the investor’s investment profile—to make a best interest recommendation. In other words, both types of firms, and their advisors, must first consider the account type that is appropriate for the investor.
Continue reading Best Interest Standard of Care for Advisors #27