Tag Archives: mitigation

Best Interest Standard of Care for Advisors #77: Compliance with PTE 2020-02: Mitigation of Incentive Effects of Payout Grids (Part 1)

The Department of Labor’s “Fiduciary Rule,” PTE 2020-02: The FAQs

This series focuses on the DOL’s new fiduciary “rule”. 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 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.

Continue reading Best Interest Standard of Care for Advisors #77: Compliance with PTE 2020-02: Mitigation of Incentive Effects of Payout Grids (Part 1)

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Best Interest Standard of Care for Advisors #76: Compliance with PTE 2020-02: Mitigation of Conflicts (Part 3)

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 DOL has issued FAQs that generally explain PTE 2020-02 and the expanded definition of fiduciary advice.
  • In FAQ 16, the DOL discusses the requirements to have policies and procedures to mitigate conflicts of interest. The mitigation requirement applies to conflicts both at the firm level and at the investment professional level.
  • The requirement is that the policies and procedures 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”.
  • Best Interest #74 (Part 1) discussed the general requirements under FAQ 16 to mitigate conflicts of interest of both the financial institution and the investment professional. Best Interest #75 (Part 2) looked at mitigation of conflicts of investment professional. This post discusses the mitigation of conflicts for the financial institutions, including broker-dealers, investment advisers, insurance companies and banks and trust 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 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.

Continue reading Best Interest Standard of Care for Advisors #76: Compliance with PTE 2020-02: Mitigation of Conflicts (Part 3)

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Best Interest Standard of Care for Advisors #75: Compliance with PTE 2020-02: Mitigation of Conflicts (Part 2)

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 16, the DOL discusses the requirements to have policies and procedures to mitigate conflicts of interest. The mitigation requirement applies to conflicts both at the firm level and at the investment professional level.
  • The requirement is that the policies and procedures 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”.
  • Best Interest #74 (Part 1) discussed the general requirements under FAQ 16 to mitigate conflicts of interest of both the financial institution and the investment professional. This post focuses on mitigation of the conflicts of the investment professional.

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 will be fiduciaries for their recommendations to retirement investors and, therefore, will need the protection provided by the exemption.

Continue reading Best Interest Standard of Care for Advisors #75: Compliance with PTE 2020-02: Mitigation of Conflicts (Part 2)

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Best Interest Standard of Care for Advisors #74: Compliance with PTE 2020-02: Mitigation of Conflicts (Part 1)

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 16, the DOL discusses the requirements to have policies and procedures to mitigate conflicts of interest. The mitigation requirement applies to both conflicts at the firm level and at the investment professional level.
  • The requirement is that the policies and procedures 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 will be fiduciaries for their recommendations to retirement investors and, therefore, will need the protection provided by the exemption.

Continue reading Best Interest Standard of Care for Advisors #74: Compliance with PTE 2020-02: Mitigation of Conflicts (Part 1)

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Best Interest Standard of Care for Advisors #70: Compliance with PTE 2020-02: Factors to Evaluate for an IRA-to-IRA Rollover Recommendation (Part 6 on FAQ 15)

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 DOL FAQs generally explain PTE 2020-02 and the expanded definition of fiduciary advice.
  • In FAQ 15, the DOL discusses the factors to be considered for a “rollover” recommendation. While most of the articles in this Best Interest series have focused on plan-to-IRA rollovers, the DOL’s definition of “rollover” includes a transfer—or rollover—from an IRA to another IRA. This article discusses IRA-to-IRA “rollover” recommendations.
  • The requirement that a rollover recommendation satisfy the best interest standard of care has applied since February 16. The DOL non-enforcement policy delays the enforcement of the conditions of PTE 2020-02, but does not delay 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 ERISA 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.

Continue reading Best Interest Standard of Care for Advisors #70: Compliance with PTE 2020-02: Factors to Evaluate for an IRA-to-IRA Rollover Recommendation (Part 6 on FAQ 15)

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Best Interest Standard of Care for Advisors #51

The Department of Labor’s “Fiduciary Rule,” PTE 2020-02 (Part 16): Mitigation Strategies


This series focuses on the DOL’s new fiduciary “rule”. This post is the 16th in a subseries discussing special compliance issues related to the rule. This article looks at compliance with the rule’s mitigation requirements, with particular emphasis on broker-dealers and investment advisers.


On February 16, 2021, the DOL’s prohibited transaction exemption (PTE) 2020-02 became effective. (Improving Investment Advice for Workers & Retirees) It 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 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 and therefore will need the protections afforded by the exemption. They will also need to satisfy the best interest standard of care. The relief provided by the exemption is conditional, that is, the “conditions” in the exemption must be satisfied to obtain relief from the prohibited transaction rules in ERISA and the Internal Revenue Code. For the period from February 16 until December 20, a DOL and IRS non-enforcement policy based on the Impartial Conduct Standards will be available.

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Best Interest Standard of Care for Advisors #50

The Department of Labor’s “Fiduciary Rule,” PTE 2020-02 (Part 15): Mitigation Strategies


This series focuses on the DOL’s new fiduciary “rule”. This post is the 15th in a subseries discussing special or unique compliance issues related to the rule. This article looks at compliance with the rule’s mitigation requirements, with particular emphasis on broker-dealers and investment advisers.


On February 16, 2021, the DOL’s prohibited transaction exemption (PTE) 2020-02 became effective. (Improving Investment Advice for Workers & Retirees) It 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 #49

The Department of Labor’s “Fiduciary Rule,” PTE 2020-02 (Part 14): The Two Compensation Requirements: Reasonable Compensation and Mitigation


This series focused on the DOL’s new fiduciary “rule”. This post is the 14th in a subseries discussing special or unique compliance issues related to the rule. This article looks at the issues related to complying with the rule’s reasonable compensation and mitigation requirements, with particular emphasis on broker-dealers and investment advisers.


On February 16, 2021, the DOL’s prohibited transaction exemption (PTE) 2020-02 became effective. (Improving Investment Advice for Workers & Retirees) It 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 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 and therefore will need the protections afforded by the exemption. They will also need to satisfy the best interest standard of care. The relief provided by the exemption is conditional, that is, the “conditions” in the exemption must be satisfied to obtain relief from the prohibited transaction rules in ERISA and the Internal Revenue Code. For the period from February 16 until December 20, a DOL and IRS non-enforcement policy based on the Impartial Conduct Standards will be available.

Continue reading Best Interest Standard of Care for Advisors #49

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Best Interest Standard of Care for Advisors #48

The Department of Labor’s “Fiduciary Rule,” PTE 2020-02 (Part 13): The Two Compensation Requirements: Reasonable Compensation and Mitigation


On February 16, 2021, the DOL’s prohibited transaction exemption (PTE) 2020-02 became effective. (Improving Investment Advice for Workers & Retirees) It 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 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 and therefore will need the protections afforded by the exemption. They will also need to satisfy the best interest standard of care. The relief provided by the exemption is conditional. That is, the “conditions” in the exemption must be satisfied. For the period from February 16 until December 20, a DOL and IRS non-enforcement policy based on the Impartial Conduct Standards will be available.

This article builds on my earlier posts: Part 11, Mitigation, and Part 12, Reasonable Compensation. They are connected in the sense that unreasonably high compensation would be difficult to mitigate.

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Best Interest Standard of Care for Advisors #47

The Department of Labor’s “Fiduciary Rule,” PTE 2020-02 (Part 12): The Requirement that Investment Advisers and Broker-Dealers to Receive No More Than Reasonable Compensation


On February 16, 2021, the DOL’s prohibited transaction exemption (PTE) 2020-02 became effective. The PTE is titled “Improving Investment Advice for Workers & Retirees.” It 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 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 and therefore will need the protections afforded by the exemption. In addition, they will need prudent, or best practice, processes to satisfy the fiduciary and best interest standards of care.

Continue reading Best Interest Standard of Care for Advisors #47

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