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 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.
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.