Category Archives: IRA

Best Interest Standard #60: Compliance with PTE 2020-02


2020-02, best interest, DOL, fiduciary, investment adviser, IRA, prohibited transaction, rollovers
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The DOL “Fiduciary Rule,” FAQ 10: The PTE Conditions

This series focuses on the DOL’s new fiduciary “rule”, which was effective on February 16. This, and the next several, articles look at the Frequently Asked Questions (FAQs) issued by the DOL to explain the fiduciary definition and the exemption for conflicts of interest.

Key Takeaways

  • The DOL FAQs generally explain PTE 2020-02 and the expanded definition of fiduciary advice. FAQ 10 discusses the requirements imposed by the PTE.
  • Prohibited Transaction Exemption 2020-02–has two parts. One part is the expanded interpretation of the definition of fiduciary advice (in the preamble to the PTE) which will cause many more rollover recommendations to be considered fiduciary advice. This article looks at DOL FAQ #9 that explains that Prohibited Transaction Exemption (PTE) 2020-02 provides relief from the prohibition on compensation from a rollover IRA due to a fiduciary recommendation to roll over.
  • The second part is an exemption that creates an exception to the prohibited transaction rules for fiduciary advice that results in compensation for a financial institution (e.g., broker-dealer or investment adviser) and its investment professionals. The exemption includes relief for compensation earned from a rollover IRA and its investments (including annuities). FAQ 10 covers the requirements of the exemption.

Background

The DOL’s prohibited transaction exemption (PTE) 2020-02 (Improving Investment Advice for Workers & Retirees) 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 addition, 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 for their recommendations to retirement investors and, therefore, will need the protection provided by the exemption.

In April, the DOL issued FAQs that explain the fiduciary interpretation and the conditions of the exemption.

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Best Interest Standard of Care for Advisors #59


2020-02, best interest, DOL, fiduciary, investment adviser, IRA, prohibited transaction
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The Department of Labor’s “Fiduciary Rule,” PTE 2020-02:  The FAQs

This series focuses on the DOL’s new fiduciary “rule”, which was effective on February 16. This, and the next several, articles look at the Frequently Asked Questions (FAQs) issued by the DOL to explain the fiduciary definition and the exemption for conflicts of interest.

Key Takeaways

  • Prohibited Transaction Exemption 2020-02–has two parts. One part is the expanded interpretation of the definition of fiduciary advice (in the preamble to the PTE) which will cause many more rollover recommendations to be considered fiduciary advice.
  • This article looks at DOL FAQ #9 that explains that Prohibited Transaction Exemption (PTE) 2020-02 provides relief from the prohibition on compensation from a rollover IRA due to a fiduciary recommendation to roll over.
  • The second part is an exemption that creates an exception to the prohibited transaction rules for fiduciary advice that results in compensation for a financial institution (e.g., broker-dealer or investment adviser) and its investment professionals. The exemption includes relief for compensation earned from a rollover IRA and its investments (including annuities). FAQ #9 explains that relief.

Background

The DOL’s prohibited transaction exemption (PTE) 2020-02 (Improving Investment Advice for Workers & Retirees) 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 addition, the DOL announced, in the preamble to the PTE, an expanded definition of fiduciary advice, meaning that many more financial institutions and investment professionals will be fiduciaries for their recommendations to retirement investors and, therefore, will need the protection provided by the exemption.

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Best Interest Standard of Care for Advisors #58


2020-02, DOL, fiduciary, investment adviser, IRA, prohibited transaction
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The Department of Labor’s “Fiduciary Rule,” PTE 2020-02:  The FAQs

This series focuses on the DOL’s new fiduciary “rule”, which was effective on February 16. This, and the next several, articles look at the Frequently Asked Questions (FAQs) issued by the DOL to explain the fiduciary definition and the exemption for conflicts of interest.

Key Takeaways

  • This article looks at a DOL FAQ that explains the DOL’s interpretation of the “mutual understanding” and “primary basis” parts of the 5-part test.
  • The new fiduciary “rule”—Prohibited Transaction Exemption (PTE) 2020-02–has two parts. One part is the expanded interpretation of the definition of fiduciary advice (in the preamble to the PTE).
  • The expanded interpretation is just that—a broadening of the 5-part test in a 1975 regulation. The new interpretation dramatically changes the landscape of advice to participants (particularly for rollovers) and to IRA owners.
  • The combination of these interpretations (together with the “regular basis” interpretation) make it increasingly difficult to avoid fiduciary status for advice to retirement plans, participants and IRA owners where the financial relationship is ongoing

Background

The DOL’s prohibited transaction exemption (PTE) 2020-02 (Improving Investment Advice for Workers & Retirees) 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 addition, the DOL announced, in the preamble to the PTE, an expanded definition of fiduciary advice, meaning that many more financial institutions and investment professionals will be fiduciaries for their recommendations to retirement investors and, therefore, will need the protection provided by the exemption.

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Best Interest Standard of Care for Advisors #57


2020-02, 84-24, DOL, fiduciary, investment adviser, IRA, prohibited transaction, rollovers
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The Department of Labor’s “Fiduciary Rule,” PTE 2020-02:  The FAQs

This series focuses on the DOL’s new fiduciary “rule”, which was effective on February 16. This, and the next several, articles look at the Frequently Asked Questions (FAQs) issued by the DOL to explain the fiduciary definition and the exemption for conflicts of interest.

Key Takeaways

  • The new fiduciary “rule”—Prohibited Transaction Exemption (PTE) 2020-02–has two parts. One part is the expanded interpretation of the definition of fiduciary advice (in the preamble to the PTE).
  • The expanded interpretation is just that—a broadening of the 5-part test in a 1975 regulation. The new interpretation dramatically changes the landscape of advice to participants (particularly for rollovers) and to IRA owners.
  • This article looks at a DOL FAQ that discusses the “regular basis” part of the 1975 regulation and explains how it reverses the prior DOL position–and how that change means that many, if not most, rollover recommendations will be fiduciary advice subject to ERISA’s prudent man rule.

Background

The DOL’s prohibited transaction exemption (PTE) 2020-02 (Improving Investment Advice for Workers & Retirees) 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 addition, the DOL announced, in the preamble to the PTE, an expanded definition of fiduciary advice, meaning that many more financial institutions and investment professionals will be fiduciaries for their recommendations to retirement investors and, therefore, will need the protection provided by the exemption.

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Best Interest Standard of Care for Advisors #56


2020-02, best interest, DOL, fiduciary, investment adviser, IRA, prohibited transaction, rollovers
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The Department of Labor’s “Fiduciary Rule,” PTE 2020-02:  The FAQs

This series focuses on the DOL’s new fiduciary “rule”, which was effective on February 16. This, and the next several, articles look at the Frequently Asked Questions (FAQs) issued by the DOL to explain the fiduciary definition and the exemption for conflicts of interest.

Key Takeaways

  • The new fiduciary “rule”—Prohibited Transaction Exemption (PTE) 2020-02–has two parts.
  • The first part is the expanded interpretation of the definition of fiduciary advice (in the preamble to the PTE).
  • The second part is a prohibited transaction exemption.
  • The expanded interpretation is just that—a broadening of the 5-part test in a 1975 regulation. While a new interpretation of old rules may not seem that important at first blush, it dramatically changes the landscape of advice to participants (particularly for rollovers) and to IRA owners—both because of the application of the best interest standard and because certain prohibitions in ERISA and the Code only apply if a recommendation is fiduciary advice.
  • This article looks at a DOL FAQ that discusses the 5 parts of the 1975 regulation and comments on possible consequences of the DOL’s new interpretation.

Background

The DOL’s prohibited transaction exemption (PTE) 2020-02 (Improving Investment Advice for Workers & Retirees) 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 #55


2020-02, 84-24, best interest, DOL, fiduciary, investment adviser, IRA, prohibited transaction, rollovers
, , , , ,

The Department of Labor’s “Fiduciary Rule,” PTE 2020-02:  The FAQs

This series focuses on the DOL’s new fiduciary “rule”, which was effective on February 16. This, and the next several, articles look at the Frequently Asked Questions (FAQs) issued by the DOL to explain the fiduciary definition and the exemption for conflicts of interest.

Key Takeaways

  • The new fiduciary “rule”—Prohibited Transaction Exemption 2020-02–has two parts.
  • The first part is the expanded definition of fiduciary advice (in the preamble to the PTE).
  • The second part is the prohibited transaction exemption.
  • However, changes are being considered for both the definition and the exemption (as well as for other exemptions for nondiscretionary fiduciary advice). This article discusses the likely changes and the DOL’s regulatory agenda.
  • The change to the fiduciary definition will likely cause even more advisors and agents (and their firms) to be fiduciaries for plans, participants and IRA owners.
  • The changes to the exemptions will impose additional compliance burdens on investment advisers, broker-dealers, banks and insurance companies.

Background:

The DOL’s prohibited transaction exemption (PTE) 2020-02 (Improving Investment Advice for Workers & Retirees) 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 #54


2020-02, best interest, DOL, fiduciary, investment adviser, IRA, prohibited transaction, rollovers
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The Department of Labor’s “Fiduciary Rule,” PTE 2020-02: An Overview

This article is an overview of the requirements of PTE 2020-02. It discusses the expanded fiduciary definition, the conditions in the PTE, and the DOL’s non-enforcement policy in effect until December 20, 2021.

Key Takeaways

    • Broker-dealers, investment advisers, insurance companies and banks (“financial institutions) are already subject to the expanded fiduciary definition for advice to plans, participants and IRAs, including recommendations to rollover plan benefits to an IRA.
    • The new fiduciary “rule” has two parts with their own effective dates. The first part, the expanded definition of fiduciary advice, became effective for enforcement purposes on February 16.
    • The second part, the prohibited transaction exemption, also became effective on February 16, but a non-enforcement policy delayed the enforcement of most, but not all, of its conditions to December 21.That non-enforcement requires satisfaction of the Impartial Conduct Standards (ICS).The non-enforcement policy applies to the DOL and IRS, but does not impact private rights of action.
    • Financial institutions need to have practices in place now to comply with the ICS, and then, before December 21, need to have disclosures, policies, practices and processes in place for compliance with the full exemption. Because of the volume of work to be done, that work should be underway by now.
    • This article is a summary of the work to be done.

The DOL’s prohibited transaction exemption (PTE) 2020-02 (Improving Investment Advice for Workers & Retirees) 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 #53


2020-02, best interest, DOL, fiduciary, investment adviser, IRA, prohibited transaction, rollovers
, , , , , ,

The Department of Labor’s “Fiduciary Rule,” PTE 2020-02:  The FAQs

This series focuses on the DOL’s new fiduciary “rule”, which was effective on February 16. This, and the next several, articles look at the Frequently Asked Questions (FAQs) issued by the DOL to explain the fiduciary definition and the exemption for conflicts of interest.

Key Takeaways

  • The new fiduciary “rule” has two parts with their own effective dates.
  • The first part-the expanded definition of fiduciary advice-became effective for enforcement purposes on February 16.
  • The second part-the prohibited transaction exemption-also became on February 16, but a non-enforcement policy delayed most, but not all, of its conditions to December 21.
  • The condition now in effect is satisfaction of the Impartial Conduct Standards.

The DOL’s prohibited transaction exemption (PTE) 2020-02 (Improving Investment Advice for Workers & Retirees) 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 #52


2020-02, best interest, DOL, fiduciary, IRA, prohibited transaction, rollovers
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The Department of Labor’s “Fiduciary Rule,” PTE 2020-02:  The FAQs

This series focuses on the DOL’s new fiduciary “rule”, which was effective on February 16. This, and the next several, articles look at the Frequently Asked Questions (FAQs) issued by the DOL to explain the fiduciary definition and the exemption for conflicts of interest.

The DOL’s prohibited transaction exemption (PTE) 2020-02 (Improving Investment Advice for Workers & Retirees) 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 addition, , the DOL announced,  in the preamble to the PTE, 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. The relief provided by the exemption is conditional, that is, the “conditions” in the exemption must be satisfied in order to obtain relief from the prohibited transaction rules in ERISA and the Internal Revenue Code. For the period from February 16 until December 20, a DOL and IRS non-enforcement policy based on the Impartial Conduct Standards will be available.

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Best Interest Standard of Care for Advisors #50


2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, prohibited transaction, reg BI, rollovers
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The Department of Labor’s “Fiduciary Rule,” PTE 2020-02 (Part 15): Mitigation Strategies

This series focuses on the DOL’s new fiduciary “rule”. This post is the 15th in a subseries discussing special or unique compliance issues related to the rule. This article looks at compliance with the rule’s mitigation requirements, with particular emphasis on broker-dealers and investment advisers.

On February 16, 2021, the DOL’s prohibited transaction exemption (PTE) 2020-02 became effective. (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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