The Department of Labor’s “Fiduciary Rule,” PTE 2020-02: The FAQs
Key Takeaways
- The DOL has issued FAQs that generally explain PTE 2020-02 and the expanded definition of fiduciary advice.
- In FAQ 17, the DOL discusses both the implications of payout grids and mitigation techniques to minimize compliance risks.
- The general mitigation requirement is that financial institutions—such as broker-dealers and investment advisers–mitigate conflicts of interest “to the extent that a reasonable person reviewing the policies and procedures and incentives as a whole would conclude that they do not create an incentive for the firm or the investment professional to place their interests ahead of the interest of the retirement investor”.
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.
