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
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
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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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Best Interest Standard of Care for Advisors #35
Comparing the DOL Proposal to the Broker-Dealer and RIA Standards of Conduct
Broker-dealers and investment advisers are now governed by a best interest standard of care. Those standards are based largely on the same fiduciary principles that are incorporated into the ERISA prudent man standard. The DOL recently extended the ERISA standard to an expanded definition of fiduciary status in a new interpretation found in the preamble to its proposed Prohibited Transaction Exemption (PTE) for advice to plans, participants and IRAs. Among the conditions in the PTE is a requirement that advisors adhere to a best interest standard of care which, like its broker-dealer and RIA counterparts, is a combination of a duty of care and a duty of loyalty. This continues the convergence of the fiduciary standards for investment advisers and fiduciary advisors and the fiduciary-like standard for broker-dealers.
My colleagues, Joan Neri and Bruce Ashton, and I have recently written an article describing the similarities (and some differences) among those three pieces of guidance. The article includes a chart, which should make it easier to compare the different relevant provisions from the guidance.
Continue reading Best Interest Standard of Care for Advisors #35
Best Interest Standard of Care for Advisors #34
Regulation Best Interest: Best Interest and Suitability—How They Differ (Part 5)
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?
Parts 1, 2 and 3 of this series (Best Interest Standard of Care for Advisors #30, #31 and #32) explain that the difference between best interest and suitability is not easily defined. However, based on the SEC’s discussion in the Adopting Release for Reg BI, I provided five 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 “best interest” makes cost a more important factor than it was under the suitability standard.
Continue reading Best Interest Standard of Care for Advisors #34
Best Interest Standard of Care for Advisors #33
Regulation Best Interest: Best Interest and Suitability—How They Differ (Part 4)
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?
Continue reading Best Interest Standard of Care for Advisors #33
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