The Department of Labor’s “Fiduciary Rule,” PTE 2020-02: The FAQs
Key Takeaways
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- The DOL has issued FAQs that generally explain PTE 2020-02 and the expanded definition of fiduciary advice.
- In FAQ 18, the DOL discusses the application of the requirements to the distribution of insurance products and the impact on insurance companies.
- However, many insurance companies have decided against using PTE 2020-02 primarily because of the requirement that the insurance companies accept fiduciary status for the recommendations.
- Instead, most insurance companies are relying on agents using PTE 84-24, and some are providing forms and educational materials to support that usage.
- Meanwhile, the DOL is working on a further expanded fiduciary definition and a more demanding PTE 84-24 that will increase the oversight responsibilities for covered recommendations by insurance agents.
- There may be a role for IMOs, FMOs and BGAs in the anticipated revised 84-24 in terms of the oversight of the recommendations by independent agents.
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 are fiduciaries for their recommendations to retirement investors and, therefore, will need the protection provided by the exemption.
