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Best Interest Standard of Care for Advisors #68: Compliance with PTE 2020-02: Factors to Evaluate for a Rollover Recommendation (Part 4)

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 15 explains the DOL’s opinion on the factors to be considered in the process of determining whether a rollover recommendation is in the best interest of a plan participant. One of the requirements is that the investment professional and the financial institution obtain information about the participant’s plan and account. The preferred approach is to use “primary” data (that is, actual and current plan data), but in some circumstances “alternative”, or secondary, data can be used.
  • The requirement that a rollover recommendation from a plan to an IRA satisfy the best interest standard of care already applies, since the DOL non-enforcement policy delays the exemption conditions but not the fiduciary definition.

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 15, a DOL question and answer about the factors that must be considered to satisfy the best interest standard of care for rollover recommendations. The first article in this subseries, Best Interest #65, quoted the full Q & A. This week’s article focuses on the use of primary plan data and alternative plan data.

Continue reading Best Interest Standard of Care for Advisors #68: Compliance with PTE 2020-02: Factors to Evaluate for a Rollover Recommendation (Part 4)

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Best Interest Standard of Care for Advisors #67: Compliance with PTE 2020-02: Factors to Evaluate for a Rollover Recommendation (Part 3)

The DOL “Fiduciary Rule,” FAQ 15: Factors to Evaluate for a Rollover Recommendation (Part 3)

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 15 explains the DOL’s opinion on the factors to be considered in the process of determining whether a rollover recommendation is in the best interest of a plan participant. In order to obtain relief from the prohibited transaction that results from a rollover recommendation where the financial institution and the investment professional are fiduciaries for the recommendation, the Impartial Conduct Standards must be satisfied during the period from February 16, 2021 until December 20, 2021 under the DOL’s non-enforcement policy (with concurrence by the IRS), and then on December 21, all of the conditions of PTE 2020-02 must be satisfied.
  • However, the requirement that a rollover recommendation satisfy the best interest standard of care is not delayed until December 21, since the Impartial Conduct Standards require that a financial institution and an investment professional satisfy the best interest standard of care. FAQ 15 explains the DOL’s view on what is required to do that.

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.

Continue reading Best Interest Standard of Care for Advisors #67: Compliance with PTE 2020-02: Factors to Evaluate for a Rollover Recommendation (Part 3)

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Interest Standard of Care for Advisors #66: Compliance with PTE 2020-02: Factors to Evaluate for a Rollover Recommendation (Part 2)

The DOL “Fiduciary Rule,” FAQ 15: Factors to Evaluate for a Rollover Recommendation (Part 2)

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 15 explains the DOL’s opinion on the factors to be considered in the process of determining whether a rollover recommendation is in the best interest of a plan participant.
  • In order to obtain relief from the prohibited transaction that results from a rollover recommendation where the financial institution and the investment professional are fiduciaries for the recommendation, the Impartial Conduct Standards must be satisfied during the period from February 16, 2021 until December 20, 2021 under the DOL’s non-enforcement policy (with concurrence by the IRS), and then on December 21, all of the conditions of PTE 2020-02 must be satisfied.
  • However, the requirement that a rollover recommendation satisfy the best interest standard of care is not delayed until December 21, since the Impartial Conduct Standards require that a financial institution and an investment professional satisfy the best interest standard of care. FAQ 15 explains the DOL’s view on what is required to do that.

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.

Continue reading Interest Standard of Care for Advisors #66: Compliance with PTE 2020-02: Factors to Evaluate for a Rollover Recommendation (Part 2)

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