Category Archives: investment adviser

The New Fiduciary Rule (50): What is a Best Interest Process?


best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, reg BI, rollovers, SEC
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Key Takeaways

  • The DOL’s new regulation defining fiduciary advice to include one-time recommendations has been stayed, but advisers who make ongoing individualized recommendations to ERISA-governed retirement plans, participants in those plans, and IRA owners continue to be fiduciaries subject to fiduciary standards. Those standards—prudence and loyalty—can be called a best interest standard.
  • However, the SEC’s fiduciary standard for one-time recommendations by investment advisers continues to apply. The SEC position is most recently documented in its Commission Interpretation Regarding Standard of Conduct for Investment Advisers. The SEC said that the investment adviser duties of care and loyalty—taken together–are a best interest standard.
  • The best interest standard for both broker-dealers and investment advisers has been further defined by the SEC Staff in its Bulletin entitled Standards of Conduct for Broker-Dealers and Investment Advisers Account Recommendations for Retail Investors.
  • In addition, one-time recommendations of insurance products are regulated by state insurance departments and almost all of the states have adopted NAIC Model Regulation #275, “Suitability in Annuity Transactions”, either verbatim or in large part, for recommendations of annuities. The NAIC has referred to this as a best interest standard.
  • This post discusses the basic requirements for a best interest process for making recommendations to ERISA-governed retirement plans, participants in those plans, and IRA owners.
  • Note that Reg BI and the NAIC model rule do not apply to recommendations to retirement plans, but do apply to participants and IRA owners, including rollover recommendations and recommendations to transfer IRAs.

If you study the rules of the various standard-setters, a pattern emerges about their expectations for the process for developing a best interest recommendation. The DOL and SEC are consistent in that regard, while the NAIC model rule is less demanding, as explained later in this article.

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The New Fiduciary Rule (49): Recommendations to Transfer IRAs (NAIC)


best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, reg BI, SEC
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Key Takeaways

  • Two Texas Federal District Courts have “stayed” the effective dates of the DOL’s new fiduciary regulation and related exemptions, meaning that the private sector will not have to comply with those rules until the cases are resolved and if the guidance is vacated, those rules will never be effective.
  • As a result, one-time recommendations to plans, participants and IRA owners will not be fiduciary advice for purposes of ERISA and the Internal Revenue Code.
  • However, one-time recommendations of securities (and insurance products that are securities) are regulated by the SEC for broker-dealers and investment advisers.
  • In addition, one-time recommendations of insurance products are regulated by state insurance departments and almost all of the states have adopted NAIC Model Regulation #275, either verbatim or in large part.
  • This post covers NAIC Model Regulation #275’s provisions for recommending exchanges of individual retirement annuities (also referred to as qualified annuities).

The stay of the effective dates of the amended fiduciary regulation and amended exemptions means that the “old” DOL fiduciary regulation (the 5-part test) and the existing exemptions continue in effect indefinitely.

My last post, Fiduciary Rule 48, discussed the DOL’s “old” and continuing definition of fiduciary advice—the 5-part test—and how it might apply to recommendations to transfer IRAs—individual retirement accounts and individual retirement annuities. The post before that, Fiduciary Rule 47, discussed SEC and SEC staff guidance on recommendations to transfer IRAs. This post is about the application of the conduct standards in NAIC Model Regulation #275 to the recommendation of annuities. The Model Regulation has been adopted by substantially all of the states, either verbatim or in large part.

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The New Fiduciary Rule (48): Recommendations to Transfer IRAs (DOL)


2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, reg BI, SEC
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Key Takeaways

    • Two Texas Federal District Courts have “stayed” the effective dates of the DOL’s new fiduciary regulation and related exemptions, meaning that the private sector will not have to comply with those rules until the cases are resolved and if the guidance is vacated, those rules will never be effective.
    • As a result, one-time recommendations to plans, participants and IRAs will not be fiduciary advice for purposes of ERISA and the Internal Revenue Code.
    • However, one-time recommendations are regulated by the SEC for broker-dealers and investment advisers and by state insurance departments for insurance producers (primarily under the NAIC Model Regulation #275 which has been adopted by most states).
    • My last post discussed SEC and SEC staff guidance on recommendations to transfer IRAs.
    • This post covers likely DOL interpretations concerning recommendations to transfer or exchange of individual retirement accounts and individual retirement annuities.
    • The third post in this series will cover NAIC Model Regulation #275’s provisions for recommending exchanges of individual retirement annuities (also referred to as qualified annuities).

The stay of the effective dates of the amended fiduciary regulation and amended exemptions means that the “old” DOL fiduciary regulation (the 5-part test) and the existing exemptions continue in effect indefinitely.

My last post, Fiduciary Rule 47, discussed SEC and SEC staff guidance on recommendations to transfer IRAs. This post is about the DOL’s likely interpretation of how the existing 5-part fiduciary definition applies to IRA transfer recommendations.

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The New Fiduciary Rule (47): Recommendations to Transfer IRAs (SEC)


best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, reg BI, SEC
, , ,

Key Takeaways

  • Two Texas Federal District Courts have “stayed” the effective dates of the DOL’s new fiduciary regulation and related exemptions, meaning that the private sector will not have to comply with those rules until the cases are resolved.
  • As a result, one-time recommendations to plans, participants and IRAs will not be fiduciary advice for purposes of ERISA and the Internal Revenue Code. However, one-time recommendations are regulated by the SEC for broker-dealers and investment advisers and by state insurance departments for insurance producers (primarily under the NAIC Model Regulation #275 which has been adopted by most states).
  • This post discusses SEC and SEC staff guidance on recommendations to transfer IRAs. The next two will cover likely DOL interpretations and NAIC Model Regulation #275’s provisions concerning the transfer or exchange of individual retirement accounts and individual retirement annuities.

The stay of the effective dates of the amended fiduciary regulation and amended exemptions means that the “old” DOL fiduciary regulation (the 5-part test) and the existing exemptions continue in effect indefinitely. As a result, it is unlikely that one-time plan-to-IRA rollover recommendations will be fiduciary recommendations under ERISA or the Internal Revenue Code. However, the standards of conduct for recommendations to transfer IRAs (that is, either individual retirement accounts or individual retirement annuities) are also governed by other regulators (and may still be subject to the DOL’s “old” fiduciary definition). This article and the next two will discuss conduct standards for IRA (including qualified annuities) of  the SEC, NAIC and DOL.

The SEC’s guidance is found in Regulation Best Interest (Reg BI) for broker-dealers and the Commission Interpretation Regarding Standard of Conduct for Investment Advisers (IA Interpretation). While Reg BI imposes a “best interest” standard and the IA Interpretation concerns  a fiduciary standard, the SEC staff, in its SEC Staff Bulletin: Standards of Conduct for Broker-Dealers and Investment Advisers Account Recommendations for Retail Investors explained: Although the specific application of Reg BI and the IA fiduciary standard may differ in some respects and be triggered at different times, in the staff’s view, they generally yield substantially similar results in terms of the ultimate responsibilities owed to retail investors. [The emphasis is mine.]

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The New Fiduciary Rule (44): The Regulation and Exemptions are Stayed (4)—What Remains?


2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, prohibited transaction, rollovers, SEC
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Key Takeaways

  • Shortly after the DOL’s new regulation defining fiduciary advice and amended Prohibited Transaction Exemptions 2020-02 and 84-24 were finalized, two lawsuits were filed in Federal District Courts in Texas.
  • The lawsuits sought to “vacate,” or overturn, the regulation and exemptions as being beyond the authority of the DOL. In addition, the plaintiffs requested that the courts “stay” the effective dates of the regulation and exemptions pending the outcome of the lawsuits.
  • Both courts have “stayed” the effective dates, meaning that the private sector will not have to comply with those rules until the cases are resolved.
  • The next step will be for those courts to determine if the regulation and exemptions are valid or should be vacated.
  • However, there are still compliance issues related to one-time rollover recommendations.

The DOL’s fiduciary regulation was scheduled to become effective this September 23. The exemptions were scheduled to become partially effective this September 23 and fully effective September 23, 2025.

Two Federal district courts—one in the Eastern District of Texas and the other in the Northern District—have stayed the effective dates. That means that the new rules will not be effective until the courts have decided on the validity of the regulation and exemptions and, most likely, until the appeals are exhausted one way or the other.

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The New Fiduciary Rule (43): The Regulation and Exemptions are Stayed (3)—What Remains?


2020-02, broker-dealers, DOL, fiduciary, investment adviser, prohibited transaction, rollovers, SEC
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Key Takeaways

  • Shortly after the DOL’s new regulation defining fiduciary advice and amended Prohibited Transaction Exemptions 2020-02 and 84-24 were finalized, two lawsuits were filed in Federal District Courts in Texas.
  • The lawsuits sought to “vacate,” or overturn, the regulation and exemptions as being beyond the authority of the DOL. In addition, the plaintiffs requested that the courts “stay” the effective dates of the regulation and exemptions pending the outcome of the lawsuits.
  • Both courts have “stayed” the effective dates, meaning that the private sector will not have to comply with those rules until the cases are resolved.
  • The next step will be for those courts to determine if the regulation and exemptions are valid or should be vacated.
  • However, there are still compliance issues related to one-time rollover recommendations.

The DOL’s fiduciary regulation was scheduled to become effective this September 23. The exemptions were scheduled to become partially effective this September 23 and fully effective September 23, 2025.

Two Federal district courts—one in the Eastern District of Texas and the other in the Northern District—have stayed the effective dates. That means that the new rules will not be effective until the courts have decided on the validity of the regulation and exemptions and, most likely, until the appeals are exhausted one way or the other.

As a result, the current fiduciary regulation, with its 5-part test, will continue in effect pending the final resolution of the lawsuits. In the same vein, the current PTEs 84-24 and 2020-02 will continue in effect until a final decision is reached on the validity of the amended PTEs.

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The New Fiduciary Rule (42):The Regulation and Exemptions are Stayed (2)—What Remains?


2020-02, 84-24, broker-dealers, DOL, fiduciary, investment adviser, prohibited transaction, rollovers, SEC
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Key Takeaways

  • Shortly after the DOL’s new regulation defining fiduciary advice and amended Prohibited Transaction Exemptions 2020-02 and 84-24 were finalized, two lawsuits were filed in Federal District Courts in Texas.
  • The lawsuits sought to “vacate”, or overturn, the regulation and exemptions as being beyond the authority of the DOL. In addition, the plaintiffs requested that the courts “stay” the effective dates of the regulation and exemptions pending the outcome of the lawsuits.
  • In the past two weeks, both courts have agreed to stay the effective dates, pending resolution of the cases.
  • The next step will be for those courts to determine if the regulation and exemptions are valid or should be vacated.
  • However, there are still compliance issues.

The DOL’s fiduciary regulation was scheduled to become effective this September 23. The exemptions were scheduled to become partially effective this September 23 and fully effective September 23, 2025.

Two Federal district courts—one in the Eastern District of Texas and the other in the Northern District—have stayed the effective dates. That means that the new rules will not be effective until the courts have decided the validity of the regulation and exemptions and, most likely, until the appeals are exhausted one way or the other.

As a result, the current fiduciary regulation, with its 5-part test, will continue in effect pending the final resolution of the lawsuits. In the same vein, the current PTEs 84-24 and 2020-02 will continue in effect until a final decision is reached on the validity of the amended PTEs.

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The New Fiduciary Rule (41):The Regulation and Exemptions are Stayed


2020-02, 84-24, broker-dealers, DOL, fiduciary, investment adviser, prohibited transaction, rollovers
, , ,

Key Takeaways

  • Shortly after the DOL’s new regulation defining fiduciary advice and Amended Prohibited Transaction Exemptions 2020-02 and 84-24 were finalized, two lawsuits were filed in Federal District Courts in Texas.
  • The lawsuits sought to “vacate”, or overturn, the regulation and exemptions as being beyond the authority of the DOL. In addition, the plaintiffs requested that the courts “stay” the effective dates of the regulation and exemptions pending the outcome of the lawsuits.
  • In the past two weeks, both courts have agreed to stay the effective dates, pending resolution of the cases.

The DOL’s fiduciary regulation was scheduled to become effective this September 23. The exemptions were scheduled to become partially effective this September 23 and fully effective September 23, 2025.

The two courts—one in the Eastern District of Texas and the other in the Northern District—have stayed the effective dates. That means that the new rules will not be effective until the courts have decided the validity of the regulation and exemptions and, most likely, until the appeals are exhausted one way or the other.

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The New Fiduciary Rule (34): The “Hire Me” Exception


fiduciary, investment adviser, prohibited transaction
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Key Takeaways

  • The DOL’s final regulation defining non-discretionary fiduciary advice will be effective on September 23 of this year.
  • If a conflicted fiduciary recommendation is made, the requirements (called “conditions”) of PTEs 2020-02 and 84-24 will need to be satisfied in order to retain any compensation resulting from the recommendation.
  • However, absent a fiduciary recommendation, the relief afforded by the exemptions will not be needed.
  • There are three ways to engage with retirement investors without making a recommendation. Those are: “hire me”, education and unsolicited. This article discusses the “hire me” approach.

The Department of Labor’s (DOL) final regulation defining fiduciary status for investment advice to retirement investors is effective on September 23, 2024. The related exemptions—PTE 2020-02 and 84-24—are partially effective on the same date. The exemptions provide relief from prohibited conflicts and compensation resulting from fiduciary recommendations to “retirement investors”–private sector retirement plans, participants in those plans (including rollover recommendations), and IRAs (including transfer and exchange recommendations).

However, the relief provided by the PTEs is not needed unless a conflicted fiduciary recommendation is made. In the preamble to the fiduciary regulation, the DOL described a recommendation as follows:

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ERISA Moments Ep. 25: The Fiduciary Rules and the Impact on Advisors and Insurance Agents


best practices, ERISA, fiduciary, investment adviser

Take a quick dive into the exciting world of ERISA with Faegre Drinker benefits and executive compensation attorneys Fred Reish and Brad Campbell. In this quick-hit series of updates, Fred and Brad offer a high-level view of current trends and recent ERISA developments.

See the newest episode, The Fiduciary Rules and the Impact on Advisors and Insurance Agents, on the Spotlight on Benefits blog.

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