The DOL’s expanded definition of fiduciary advice to retirement plans, participants, and IRAs was described in the preamble to PTE 2020-02.
The PTE then provides relief for conflicted non-discretionary recommendations to retirement investors (for example, rollover recommendations), if its conditions are satisfied.
One of the conditions for relief is that a recommendation be in the best interest of the retirement investor (e.g., retirement plan, participant in a plan, or an IRA owner).
In addition, the PTE includes requirements, or “conditions”, that focus on conflicts of interest.
This article discusses the PTE’s coverage of advice to IRAs, including the conflicts issues.
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 (all of whom are referred to as “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.
The fiduciary regulations under ERISA and the Internal Revenue Code have two definitions of fiduciary advice. The first is the obvious—where the investment professional and financial institution have discretion over the investments in retirement accounts. In effect, that is a one-part test: “discretion.” In addition, there is a 5-part test for non-discretionary fiduciary advice. The DOL did not amend the regulation to modify any of the “parts,” but instead reinterpreted some of the parts, and particularly the “regular basis” part, to significantly increase the number of investment professionals and financial institutions who are fiduciaries.