Tag Archives: financial institutions

Best Interest Standard of Care for Advisors #92: Consideration of Costs in the Evaluation of Rollovers


2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, rollovers, SEC
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Key Takeaways

The DOL’s expanded definition of fiduciary advice is described in the preamble to PTE 2020-02. The PTE then provides relief for conflicted non-discretionary recommendations (for example, rollover recommendations), if its conditions are satisfied.

In both its Regulation Best Interest (Reg BI) for broker-dealers and Interpretation Regarding Standard of Conduct for Investment Advisers (Investment Adviser Interpretation), the SEC said that rollover recommendations were subject to its best interest standard of care, which is similar to the DOL’s fiduciary and loyalty standards.

Both the DOL and the SEC also say that cost is a material consideration in evaluating rollovers. This article discusses that guidance.

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 (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.

Under these standards, a rollover recommendation will ordinarily be nondiscretionary fiduciary advice and result in a financial conflict of interest that is a prohibited transaction under both ERISA and the Internal Revenue Code. But, since the recommendation is nondiscretionary, PTE 2020-02 can provide relief, but only if all of its conditions are met.

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Best Interest Standard of Care for Advisors #91: Rollover Recommendations to Participants in Government Plans


2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, registered investment advisers, rollovers, SEC
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Key Takeaways

The DOL’s expanded definition of fiduciary advice is described in the preamble to PTE 2020-02. The PTE then provides relief for conflicted non-discretionary recommendations (for example, rollover recommendations), if its conditions are satisfied.

However, the DOL’s guidance in the PTE does not apply to rollover recommendations to participants in government plans.

Rollover recommendations by broker-dealers and investment advisers to participants in government retirement plans are regulated by the SEC. Stated slightly differently, the SEC regulates rollover recommendations by broker-dealers and investment advisers to both private sector and government plan participants.

This article discusses the SEC regulation of rollover recommendations.

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 (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.

Under these standards, a rollover recommendation will ordinarily be nondiscretionary fiduciary advice and result in a financial conflict of interest that is a prohibited transaction under both ERISA and the Internal Revenue Code. But, since the recommendation is nondiscretionary, PTE 2020-02 will provide relief, but only if all of its conditions are met.

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Best Interest Standard of Care for Advisors #62: Compliance with PTE 2020-02: Conflicted Compensation


2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, prohibited transaction, rollovers
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The DOL “Fiduciary Rule,” FAQ 12: PTE 2020-02 and Conflicted Compensation

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 FAQs generally explain PTE 2020-02 and the expanded definition of fiduciary advice.
  • FAQ 12 explains that, if the conditions of the exemption are satisfied, financial institutions and investment professionals can receive conflicted compensation resulting from fiduciary recommendations to “retirement investors”, including IRA owners.
  • The Impartial Conduct Standards, must be satisfied from February 16, 2021 until December 20, 2021 under the DOL non-enforcement policy (with concurrence by the IRS), and then on December 21, all of the conditions of PTE 2020-02 must be satisfied.

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 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.

In April, the DOL issued FAQs that explain the fiduciary interpretation and the conditions of the exemption.

This article discusses FAQ 12—a DOL question and answer about the receipt of compensation resulting from recommendations to retirement investors.

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Best Interest Standard of Care for Advisors #61: Interim Compliance with PTE 2020-02: The Impartial Conduct Standards


2020-02, best interest, broker-dealers, DOL, fiduciary, investment adviser, IRA, prohibited transaction, rollovers
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The DOL “Fiduciary Rule,” FAQ 11: The Impartial Conduct Standards

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 FAQs generally explain PTE 2020-02 and the expanded definition of fiduciary advice.
  • FAQ 11 discusses the Impartial Conduct Standards, which must be satisfied from February 16, 2021 until December 20, 2021 under the DOL non-enforcement policy (with concurrence by the IRS), and then on December 21, the Impartial Conduct Standards become one of the conditions of full compliance with PTE 2020-02.

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 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.

In April, the DOL issued FAQs that explain the fiduciary interpretation and the conditions of the exemption.

This article discusses FAQ 11—a DOL question and answer about the Impartial Conduct Standards. The Impartial Conduct Standards must be satisfied between February 16 and December 20 to obtain the relief afforded by the DOL’s non-enforcement policy. After December 20, the Impartial Conduct Standards must still be satisfied…as one of the conditions in PTE 2020-02.

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Best Interest Standard #60: Compliance with PTE 2020-02


2020-02, best interest, DOL, fiduciary, investment adviser, IRA, prohibited transaction, rollovers
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The DOL “Fiduciary Rule,” FAQ 10: The PTE Conditions

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 FAQs generally explain PTE 2020-02 and the expanded definition of fiduciary advice. FAQ 10 discusses the requirements imposed by the PTE.
  • Prohibited Transaction Exemption 2020-02–has two parts. One part is the expanded interpretation of the definition of fiduciary advice (in the preamble to the PTE) which will cause many more rollover recommendations to be considered fiduciary advice. This article looks at DOL FAQ #9 that explains that Prohibited Transaction Exemption (PTE) 2020-02 provides relief from the prohibition on compensation from a rollover IRA due to a fiduciary recommendation to roll over.
  • The second part is an exemption that creates an exception to the prohibited transaction rules for fiduciary advice that results in compensation for a financial institution (e.g., broker-dealer or investment adviser) and its investment professionals. The exemption includes relief for compensation earned from a rollover IRA and its investments (including annuities). FAQ 10 covers the requirements of the exemption.

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 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.

In April, the DOL issued FAQs that explain the fiduciary interpretation and the conditions of the exemption.

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Best Interest Standard of Care for Advisors #59


2020-02, best interest, DOL, fiduciary, investment adviser, IRA, prohibited transaction
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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.

Key Takeaways

  • Prohibited Transaction Exemption 2020-02–has two parts. One part is the expanded interpretation of the definition of fiduciary advice (in the preamble to the PTE) which will cause many more rollover recommendations to be considered fiduciary advice.
  • This article looks at DOL FAQ #9 that explains that Prohibited Transaction Exemption (PTE) 2020-02 provides relief from the prohibition on compensation from a rollover IRA due to a fiduciary recommendation to roll over.
  • The second part is an exemption that creates an exception to the prohibited transaction rules for fiduciary advice that results in compensation for a financial institution (e.g., broker-dealer or investment adviser) and its investment professionals. The exemption includes relief for compensation earned from a rollover IRA and its investments (including annuities). FAQ #9 explains that relief.

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 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.

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Best Interest Standard of Care for Advisors #58


2020-02, DOL, fiduciary, investment adviser, IRA, prohibited transaction
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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.

Key Takeaways

  • This article looks at a DOL FAQ that explains the DOL’s interpretation of the “mutual understanding” and “primary basis” parts of the 5-part test.
  • 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.
  • The combination of these interpretations (together with the “regular basis” interpretation) make it increasingly difficult to avoid fiduciary status for advice to retirement plans, participants and IRA owners where the financial relationship is ongoing

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 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.

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Best Interest Standard of Care for Advisors #57


2020-02, 84-24, DOL, fiduciary, investment adviser, IRA, prohibited transaction, rollovers
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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.

Key Takeaways

  • 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.

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 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.

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Best Interest Standard of Care for Advisors #56


2020-02, best interest, DOL, fiduciary, investment adviser, IRA, prohibited transaction, rollovers
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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.

Key Takeaways

  • The new fiduciary “rule”—Prohibited Transaction Exemption (PTE) 2020-02–has two parts.
  • The first part is the expanded interpretation of the definition of fiduciary advice (in the preamble to the PTE).
  • The second part is a prohibited transaction exemption.
  • The expanded interpretation is just that—a broadening of the 5-part test in a 1975 regulation. While a new interpretation of old rules may not seem that important at first blush, it dramatically changes the landscape of advice to participants (particularly for rollovers) and to IRA owners—both because of the application of the best interest standard and because certain prohibitions in ERISA and the Code only apply if a recommendation is fiduciary advice.
  • This article looks at a DOL FAQ that discusses the 5 parts of the 1975 regulation and comments on possible consequences of the DOL’s new interpretation.

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 retirement plans, participants and IRA owners (“retirement investors”).

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Best Interest Standard of Care for Advisors #55


2020-02, 84-24, best interest, DOL, fiduciary, investment adviser, IRA, prohibited transaction, rollovers
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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.

Key Takeaways

  • The new fiduciary “rule”—Prohibited Transaction Exemption 2020-02–has two parts.
  • The first part is the expanded definition of fiduciary advice (in the preamble to the PTE).
  • The second part is the prohibited transaction exemption.
  • However, changes are being considered for both the definition and the exemption (as well as for other exemptions for nondiscretionary fiduciary advice). This article discusses the likely changes and the DOL’s regulatory agenda.
  • The change to the fiduciary definition will likely cause even more advisors and agents (and their firms) to be fiduciaries for plans, participants and IRA owners.
  • The changes to the exemptions will impose additional compliance burdens on investment advisers, broker-dealers, banks and insurance companies.

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 retirement plans, participants and IRA owners (“retirement investors”).

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