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.
- For account-type changes (or “rollovers” in the PTE), the DOL give the example of transfers from commission-based accounts to fee-based arrangements. But that is just an example, and the language is much broader…”from one type of account to another (e.g., from a commission-based account to a fee-based account)”.
- Unfortunately, neither the exemption nor the preamble provide further definition of “one type of account to another”. However, there is guidance elsewhere that might be helpful.
- It is important that financial institutions understand what account types are contemplated by the DOL’s exemption, since covered recommendations will be subject to the conditions of the exemption, including the requirement to provide the retirement investor, in writing, with the specific reasons why the rollover (e.g., change of account type) is in the retirement investor’s best interest.
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.
