Category Archives: rollovers

Best Interest Standard of Care for Advisors #86: Information Needed for Rollover Recommendations


best interest, DOL, fiduciary, IRA, rollovers
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Key Takeaways

The DOL has issued FAQs that generally explain PTE 2020-02 and the expanded definition of fiduciary advice, particularly for rollover recommendations.

The DOL’s expanded definition of fiduciary advice was described in the preamble to PTE 2020-02.

The PTE then provides relief for conflicted non-discretionary recommendations (for example, rollover recommendations), if its conditions are satisfied.

A number of my earlier articles have discussed the requirements that PTE 2020-02 imposes on rollover recommendations.

This article discusses the need for information about the plan and the participant’s interests in the plan in order to develop a compliant rollover recommendation.

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 ERISA retirement plans, participants (including rollover recommendations), and IRA owners (all of whom are referred to as “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 are fiduciaries for their recommendations to retirement investors and, therefore, will need the protection provided by the exemption.

In the preamble to the PTE, the DOL described its expanded definition of fiduciary advice. The fiduciary regulations in ERISA and the Internal Revenue Code have two definitions of fiduciary advice. The first is the obvious—where the investment professional and financial institution have discretion over the investments in retirement accounts. In effect, that is a one-part test—“discretion.” In addition, there is a 5-part test for non-discretionary fiduciary advice. The DOL did not amend the regulation to modify any of the “parts,” but instead reinterpreted some of the parts, and particularly the “regular basis” part, to significantly increase the number of investment professionals and financial institutions who are fiduciaries.

This article focuses on the information that is needed to make a compliant rollover recommendation and particularly about information concerning the participant’s interest in the plan.

Continue reading Best Interest Standard of Care for Advisors #86: Information Needed for Rollover Recommendations →

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Best Interest Standard of Care for Advisors #75: Compliance with PTE 2020-02: Mitigation of Conflicts (Part 2)


2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, reg BI, rollovers, SEC
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The Department of Labor’s “Fiduciary Rule,” PTE 2020-02: The FAQs

Key Takeaways

  • The DOL has issued FAQs that generally explain PTE 2020-02 and the expanded definition of fiduciary advice.
  • In FAQ 16, the DOL discusses the requirements to have policies and procedures to mitigate conflicts of interest. The mitigation requirement applies to conflicts both at the firm level and at the investment professional level.
  • The requirement is that the policies and procedures mitigate conflicts of interest “to the extent that a reasonable person reviewing the policies and procedures and incentives as a whole would conclude that they do not create an incentive for the firm or the investment professional to place their interests ahead of the interest of the retirement investor”.
  • Best Interest #74 (Part 1) discussed the general requirements under FAQ 16 to mitigate conflicts of interest of both the financial institution and the investment professional. This post focuses on mitigation of the conflicts of the investment professional.

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 ERISA retirement plans, participants (including rollover recommendations), 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.

Continue reading Best Interest Standard of Care for Advisors #75: Compliance with PTE 2020-02: Mitigation of Conflicts (Part 2) →

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Best Interest Standard of Care for Advisors #74: Compliance with PTE 2020-02: Mitigation of Conflicts (Part 1)


2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, reg BI, rollovers, SEC
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The Department of Labor’s “Fiduciary Rule,” PTE 2020-02: The FAQs

Key Takeaways

  • The DOL has issued FAQs that generally explain PTE 2020-02 and the expanded definition of fiduciary advice.
  • In FAQ 16, the DOL discusses the requirements to have policies and procedures to mitigate conflicts of interest. The mitigation requirement applies to both conflicts at the firm level and at the investment professional level.
  • The requirement is that the policies and procedures mitigate conflicts of interest “to the extent that a reasonable person reviewing the policies and procedures and incentives as a whole would conclude that they do not create an incentive for the firm or the investment professional to place their interests ahead of the interest of the retirement investor”.

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 ERISA retirement plans, participants (including rollover recommendations), 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.

Continue reading Best Interest Standard of Care for Advisors #74: Compliance with PTE 2020-02: Mitigation of Conflicts (Part 1) →

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Best Interest Standard of Care for Advisors #73: Compliance with PTE 2020-02: IRA “Rollovers” Are Covered by the Rule, But What is an IRA?


2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, rollovers
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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’s PTE 2020-02 and the expanded definition of fiduciary advice apply to “rollover” recommendations, which include plan-to-IRA rollovers, IRA-to-IRA transfers, plan-to-plan rollovers, IRA-to-plan rollovers, and changes of account types in retirement accounts.
  • While it may be unexpected to learn that a recommendation to transfer an IRA is a “rollover recommendation” subject to the fiduciary definition and prohibited transaction rules, it is even more unexpected to learn that an IRA is more than an IRA.
  • This post discusses the many meanings of “IRA” for purposes of the DOL’s new guidance and the requirement to provide retirement investors with a written statement of why the rollover recommendation is in their best interest. (The written disclosures of the specific reasons isn’t required until July 1, 2022 due to the DOL’s extension of its non-enforcement policy.)

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 ERISA 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.

Continue reading Best Interest Standard of Care for Advisors #73: Compliance with PTE 2020-02: IRA “Rollovers” Are Covered by the Rule, But What is an IRA? →

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Best Interest Standard of Care for Advisors #71: Compliance with PTE 2020-02: Further Extension of Non-Enforcement Policy


2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, rollovers
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This series focuses on the DOL’s new fiduciary “rule”, which was effective on February 16. This article looks at the Department of Labor’s recent extension of its non-enforcement policy regarding the conditions of Prohibited Transaction Exemption 2020-02….if the Impartial Conduct Standards are satisfied.

Key Takeaways

  • PTE 2020-02—sometimes referred to as fiduciary rule 3.0—was effective on February 16, 2021.
  • However, in the preamble to the PTE, the DOL extended its “non-enforcement policy” (Field Assistance Bulletin 2018-02) to December 20, 2021. That is, the DOL and IRS will not enforce the conditions of the exemption if financial institutions and investment professionals work “diligently and in good faith to comply with the Impartial Conduct Standards”.
  • In Field Assistance Bulletin (FAB) 2021-02, the DOL has extended the non-enforcement policy to January 31, 2022, and has extended, until June 30, 2022, its non-enforcement approach to the requirement to provide retirement investors with a written description of the “specific reasons” why a rollover recommendation is in the retirement investor’s best interest.
  • This article discusses the impact of the extension on (1) the conditions of PTE 2020-02, (2) the application of the expanded definition of fiduciary advice, including rollover recommendations, (3) the application to PTE 84-24 for insurance and annuity sales, and (4) the significance of the Impartial Conduct Standards in this context.

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 ERISA 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.

Continue reading Best Interest Standard of Care for Advisors #71: Compliance with PTE 2020-02: Further Extension of Non-Enforcement Policy →

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Best Interest Standard of Care for Advisors #70: Compliance with PTE 2020-02: Factors to Evaluate for an IRA-to-IRA Rollover Recommendation (Part 6 on FAQ 15)


2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, 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 DOL FAQs generally explain PTE 2020-02 and the expanded definition of fiduciary advice.
  • In FAQ 15, the DOL discusses the factors to be considered for a “rollover” recommendation. While most of the articles in this Best Interest series have focused on plan-to-IRA rollovers, the DOL’s definition of “rollover” includes a transfer—or rollover—from an IRA to another IRA. This article discusses IRA-to-IRA “rollover” recommendations.
  • The requirement that a rollover recommendation satisfy the best interest standard of care has applied since February 16. The DOL non-enforcement policy delays the enforcement of the conditions of PTE 2020-02, but does not delay the fiduciary definition.

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 ERISA 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.

Continue reading Best Interest Standard of Care for Advisors #70: Compliance with PTE 2020-02: Factors to Evaluate for an IRA-to-IRA Rollover Recommendation (Part 6 on FAQ 15) →

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Best Interest Standard of Care for Advisors #69: Compliance with PTE 2020-02: Factors to Evaluate for an IRA-to-IRA Rollover Recommendation (Part 5)


2020-02, best interest, DOL, fiduciary, investment adviser, IRA, 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 DOL FAQs generally explain PTE 2020-02 and the expanded definition of fiduciary advice.
  • In FAQ 15, the DOL discusses the factors to be considered for a “rollover” recommendation. While most of the articles in this Best Interest series have focused on plan-to-IRA rollovers, the DOL’s definition of “rollover” includes a transfer—or rollover—from an IRA to another IRA. This article discusses IRA-to-IRA “rollover” recommendations.
  • The requirement that a rollover recommendation satisfy the best interest standard of care has applied since February 16 because the DOL non-enforcement policy delays the application of the conditions of PTE 2020-02, but does not delay the fiduciary definition.

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.

Continue reading Best Interest Standard of Care for Advisors #69: Compliance with PTE 2020-02: Factors to Evaluate for an IRA-to-IRA Rollover Recommendation (Part 5) →

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Best Interest Standard of Care for Advisors #68: Compliance with PTE 2020-02: Factors to Evaluate for a Rollover Recommendation (Part 4)


2020-02, best interest, DOL, fiduciary, investment adviser, IRA, rollovers
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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 15 explains the DOL’s opinion on the factors to be considered in the process of determining whether a rollover recommendation is in the best interest of a plan participant. One of the requirements is that the investment professional and the financial institution obtain information about the participant’s plan and account. The preferred approach is to use “primary” data (that is, actual and current plan data), but in some circumstances “alternative”, or secondary, data can be used.
  • The requirement that a rollover recommendation from a plan to an IRA satisfy the best interest standard of care already applies, since the DOL non-enforcement policy delays the exemption conditions but not the fiduciary definition.

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.

This article discusses FAQ 15, a DOL question and answer about the factors that must be considered to satisfy the best interest standard of care for rollover recommendations. The first article in this subseries, Best Interest #65, quoted the full Q & A. This week’s article focuses on the use of primary plan data and alternative plan data.

Continue reading Best Interest Standard of Care for Advisors #68: Compliance with PTE 2020-02: Factors to Evaluate for a Rollover Recommendation (Part 4) →

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Best Interest Standard of Care for Advisors #67: Compliance with PTE 2020-02: Factors to Evaluate for a Rollover Recommendation (Part 3)


2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, registered investment advisers, rollovers
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The DOL “Fiduciary Rule,” FAQ 15: Factors to Evaluate for a Rollover Recommendation (Part 3)

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 15 explains the DOL’s opinion on the factors to be considered in the process of determining whether a rollover recommendation is in the best interest of a plan participant. In order to obtain relief from the prohibited transaction that results from a rollover recommendation where the financial institution and the investment professional are fiduciaries for the recommendation, the Impartial Conduct Standards must be satisfied during the period from February 16, 2021 until December 20, 2021 under the DOL’s non-enforcement policy (with concurrence by the IRS), and then on December 21, all of the conditions of PTE 2020-02 must be satisfied.
  • However, the requirement that a rollover recommendation satisfy the best interest standard of care is not delayed until December 21, since the Impartial Conduct Standards require that a financial institution and an investment professional satisfy the best interest standard of care. FAQ 15 explains the DOL’s view on what is required to do that.

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.

Continue reading Best Interest Standard of Care for Advisors #67: Compliance with PTE 2020-02: Factors to Evaluate for a Rollover Recommendation (Part 3) →

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