Category Archives: Investment Adviser

Best Interest Standard of Care for Advisors #44

The Department of Labor’s Prohibited Transaction Exemption and Its Impact on Recommendations to Plans, Participants and IRAs (Part 9)


On February 16, 2021, the DOL’s prohibited transaction exemption (PTE) 2020-02 became effective. The PTE is titled “Improving Investment Advice for Workers & Retirees.” It 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 retirement plans, participants and IRA owners (“retirement investors”).

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 and therefore will need the protections afforded by the exemption. In addition, they will need prudent, or best practice, processes to satisfy the fiduciary and best interest standards of care.

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Best Interest Standard of Care for Advisors #43

The Department of Labor’s Prohibited Transaction Exemption and Its Impact on Recommendations to Plans, Participants and IRAs (Part 8)


On February 16, 2021, the DOL’s prohibited transaction exemption (PTE) 2020-02 became effective. The PTE is titled “Improving Investment Advice for Workers & Retirees.” It 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 retirement plans, participants and IRA owners (“retirement investors”).

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Best Interest Standard of Care for Advisors #42

The Department of Labor’s Prohibited Transaction Exemption and Its Impact on Recommendations to Plans, Participants and IRAs (Part 7)


On February 16, 2021, the DOL’s prohibited transaction exemption (PTE) 2020-02 became effective. The PTE is titled “Improving Investment Advice for Workers & Retirees.” It 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 retirement plans, participants and IRA owners (“retirement investors”).

In the preamble to the PTE, the DOL also announced an expanded definition of fiduciary advice, meaning that many more financial institutions and investment professionals will be fiduciaries and therefore will need the protections afforded by the exemption. In addition, they will need prudent, or best practice, processes to satisfy the fiduciary and best interest standards of care.

In order to obtain the benefit of the exemption, financial institutions and investment professionals will need to satisfy the “conditions” in the exemption. For the period from the effective date (February 16 of this year) until December 20 of this year, a DOL and IRS non-enforcement policy for prohibited transactions will continue to apply. That is, neither the IRS nor the DOL will enforce the rules against transactions with plans, participants or IRA owners that result from nondiscretionary fiduciary advice and that are prohibited in the Code or ERISA, so long as the Impartial Conduct Standards are satisfied. The Impartial Conduct Standards are: the best interest standard of care, a limit on compensation to reasonable amounts, and a prohibition of materially misleading statements. Note, though, that this only binds the DOL and IRS. That is, the non-enforcement policy does not limit private claims that otherwise exist in the law (e.g., ERISA).

This article builds on the earlier posts, Parts 1-6, Best Interest #36, #37, #38, #39 , #40 and #41. My last two articles, and the next several, discuss interesting, and lesser known, issues related to the expanded fiduciary definition and the exemption.

This article is about the prudent, or best interest, process for making a rollover recommendation and the factors to be considered in that process.

The preamble in the proposed exemption said that, in evaluating whether a rollover was in the best interest of a participant, the financial institution and the investment professional needed to consider all of the investments available to the participant through the plan. For example, if a plan offered a lineup of 30 mutual funds, the financial institution and the investment professional needed to consider all of those, and not just the few that were in the participant’s account. Commenters were concerned that the DOL’s position meant that, if the account wasn’t well invested, they would need to make investment recommendations to the participant about the other investment alternatives in the plan. That was of particular concern for insurance companies, since many agents aren’t licensed to make recommendations about securities. In response, in the preamble to the final exemption the DOL said:

Some insurance industry commenters expressed concern that the requirement would cause them to evaluate non-insurance options which they asserted was not permitted under insurance laws. The preamble statement was not intended, however, to suggest that Investment Professionals need to make advice recommendations as to investment products they are not qualified or legally permitted to recommend. Instead, the Department was merely indicating that a rollover recommendation should not be based solely on the Retirement Investor’s existing allocation without any consideration of other investment options in the Plan. A prudent fiduciary would carefully consider the options available to the investor in the Plan, including options other than the Retirement Investor’s existing plan investments, before recommending that the participant roll assets out of the Plan. [Emphasis added.]

The bolded sentence makes it clear that all of a plan’s investment options must be considered in a prudent (or “best interest”) process. That raises a number of interesting questions. For example, how can an investment professional get that information?  One way is to ask the participant for a copy of the plan’s 404a-5 disclosure materials. (Those materials are also sometimes referred to as Participant Investment Disclosures or by a similar name.) Participants get that information every year and it is probably available on the plan’s website or from the employer’s benefits or human resources office. However, I have heard from some financial institutions that their investment professionals have difficulty in obtaining that information from participants.

There are other ways to obtain the information. One way would be through a benchmarking service. Another would be through a Form 5500 website where larger plans disclose their lineups. (A discussion of the advantages and disadvantages of the different sources of the information is beyond the scope of this article; however, financial institutions should evaluate alternative sources for accuracy and timeliness.)

Another question is, how should the investment professional consider the plan investments that are not being used by a participant?  That is a conundrum. The investment professional isn’t required to make recommendations to the participant about how to allocate among the plan investments, so arguably the consideration would be that a participant could make changes in the future. In some cases, that could make sense, for example, if the plan offers annuities or GMWBs to participants. But, in other cases, it doesn’t seem that the availability of the other investments should be weighed heavily—because it is not clear that a participant would later makes changes and, if so, how. This cries out for additional guidance. Nonetheless, the DOL position means that financial institutions and investment professionals should obtain information about all of the investments offered by a plan.

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Best Interest Standard of Care for Advisors #41

The Department of Labor’s Prohibited Transaction Exemption and Its Impact on Recommendations to Plans, Participants and IRAs (Part 6)


On February 16, 2021, the DOL’s prohibited transaction exemption (PTE) 2020-02 became effective. The PTE is titled “Improving Investment Advice for Workers & Retirees.” (https://www.govinfo.gov/content/pkg/FR-2019-07-12/pdf/2019-12208.pdf)  It allows investment advisers, broker-dealers, banks, and insurance companies (collectively referred to as “financial institutions”), and their representatives (collectively referred to as “investment professionals”), to receive conflicted compensation resulting from non-discretionary fiduciary investment advice to retirement plans, participants and IRA owners (collectively referred to as “retirement investors”).

In the preamble to the PTE, the DOL also announced an expanded definition of fiduciary advice, meaning that many more financial institutions and investment professionals will become fiduciaries and therefore need the protections afforded by the exemption. In addition, they will need prudent, or best practice, processes to satisfy those standards of care.

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Best Interest Standard of Care for Advisors #40

The Department of Labor’s Prohibited Transaction Exemption and Its Impact on Recommendations to Plans, Participants and IRAs (Part 5)


On December 18, 2020, the DOL issued its final prohibited transaction exemption (PTE) that permits investment advisers, broker-dealers, banks and insurance companies, and their representatives, to receive conflicted compensation resulting from nondiscretionary fiduciary investment advice. The PTE is titled “Improving Investment Advice for Workers & Retirees.” The citation is Prohibited Transaction Exemption 2020-02. (https://www.govinfo.gov/content/pkg/FR-2019-07-12/pdf/2019-12208.pdf) The exemption became effective on February 16, 2021.

The exemption imposes certain “conditions” that must be satisfied for financial institutions (that is, broker-dealers, investment advisers, banks or insurance companies) and their individual representatives (called “investment professionals” in the exemption) to receive the relief provided by the exemption. This article builds on the earlier posts Parts 1-4, Best Interest #36, #37, #38, and #39. This article and the ones that follow will address interesting, and perhaps lesser known, issues in the exemption.

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Best Interest Standard of Care for Advisors #39

Investment Adviser Considerations: The Department of Labor’s Prohibited Transaction Exemption and Its Impact on Recommendations to Plans, Participants and IRAs (Part 4)


On December 18, 2020, the DOL issued its final prohibited transaction exemption (PTE) that will allow conflicted compensation resulting from nondiscretionary fiduciary investment advice. The PTE is titled “Improving Investment Advice for Workers & Retirees.” The citation is Prohibited Transaction Exemption 2020-02. (https://www.govinfo.gov/content/pkg/FR-2019-07-12/pdf/2019-12208.pdf) The exemption became effective on February 16, 2021.

The exemption and the associated expansion of the definition of fiduciary advice will have the greatest impact on recommendations by investment advisers and broker-dealers (1) to retirement plan participants to take rollovers to IRAs with the advisors, and (2) to IRA owners about how to invest in their IRAs. My last article, Best Interest #38, discussed the impact on investment advisers who recommend rollovers. This article covers the impact on investment advisers for their services to IRAs and related conflicts of interest.

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Best Interest Standard of Care for Advisors #38

The Department of Labor’s Proposed Prohibited Transaction Exemption and Its Impact on Recommendations to Plans, Participants and IRAs (Part 3): Investment Adviser Considerations

On December 18, 2020, the DOL issued its final prohibited transaction exemption (PTE) that will allow conflicted compensation resulting from nondiscretionary fiduciary investment advice. The PTE is titled “Improving Investment Advice for Workers & Retirees.”  The citation is Prohibited Transaction Exemption 2020-02. The exemption is effective February 16, 2021.

The exemption and the associated expansion of the definition of fiduciary advice will have the greatest impact on recommendations by investment advisers and broker-dealers (1) to retirement plan participants about rollovers, and (2) to IRA owners about how to invest in their IRAs. This article focuses on the impact on investment advisers who recommend rollovers.

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Best Interest Standard of Care for Advisors #37

The Department of Labor’s Proposed Prohibited Transaction Exemption and its Impact on Recommendations to Plans, Participants and IRAs (Part 2)


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.” And, as my last post, #36 (Part 1), explained, the DOL said that it is re-interpreting part of the definition of fiduciary advice to include many more recommendations, and especially rollover recommendations.

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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.

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The Coronavirus Crisis: What Plan Sponsors Should Do

By Fred Reish and Bruce Ashton

The Coronavirus pandemic is disrupting everyone’s personal and financial lives. While our health, and that of our families and friends, is paramount, we realize that the sudden and large investment losses in the 401(k) plans that you sponsor – and act as fiduciaries for – present issues more challenging than those typically encountered by employers and plan committees.  This article suggests steps that you can take as fiduciaries to address those challenges.  The article also applies to advisors because it addresses questions they may get from plan sponsors.

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