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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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.

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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.

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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?

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