Tag Archives: recommendation

The New Fiduciary Rule (9): What is An Investment? (Part 1)


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The US Department of Labor has released its package of proposed changes to the regulation defining nondiscretionary fiduciary advice and to the exemptions for conflicts and compensation for investment recommendations to retirement plans, participants (including rollovers), and IRAs.

The proposed regulation redefines fiduciary status for “investment” recommendations. But what is an investment recommendation? The answer: More than you think.

Key Takeaways

  • The Department of Labor’s proposed fiduciary “package” includes new definitions of nondiscretionary fiduciary investment advice.
  • Of course, fiduciary status depends on a recommendation to a retirement investor about “investments”. The proposed regulation has an expansive definition of an investment recommendation.
  • Broker-dealers, investment advisers, and insurance companies, and their representatives, need to understand the range of recommendations that are covered by the fiduciary standards.
  • That is particularly true (i) since one-time recommendations can result in fiduciary status and (ii) where the fiduciary investment recommendation involves a conflict of interest (e.g., a new fee or a commission), the firms and their representatives and agents will need to satisfy the conditions of either PTE 84-24 or PTE 2020-02.

This article begins a discussion of the definitions of “investments” that, if recommended to a retirement investor (that is, a private sector qualified plan, participants in those plans, or IRA owners), will require satisfaction of the fiduciary standards and, in many cases, of the conditions of a prohibited transaction exemption.

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The New Fiduciary Rule (8): Special Issues—Robo Advice and Investment Education


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The U.S. Department of Labor has released its package of proposed changes to the regulation defining fiduciary advice and to the exemptions for conflicts and compensation for investment advice to plans, participants (including rollovers), and IRAs (including transfers).

Key Takeaways

  • The Department of Labor’s proposed regulation defining fiduciary investment and insurance advice to private sector retirement plans, participants in those plans, and IRA owners (collectively, “retirement investors”) includes three distinct definitions.
  • While the current version of PTE 2020-02 does not extend relief for prohibited transactions resulting from robo advice (that is, it requires a human intermediary), the proposal would extend the PTE’s protections to conflicts of interest (that is, prohibited transactions) so long as the conditions of the exemption are satisfied.
  • Some commenters have suggested that the new definitions of fiduciary status and of covered transactions are so broad that investment education would be considered fiduciary advice. To be polite, that is an exaggeration.

My last post, The New Fiduciary Rule (7), discuss the “non-discretionary” definition of fiduciary investment advice in the DOL’s proposed fiduciary regulation. The other two definitions of fiduciary status are covered by my posts The New Fiduciary Rule (5) and The New Fiduciary Rule (6).

The proposed definition of non-discretionary fiduciary advice is a material change from the current regulation because it eliminates the 5-part test, including the requirement that advice be given to the particular retirement investor on a “regular basis.” In other words, a one-time recommendation can be fiduciary advice under this definition. (The definition is somewhat more demanding that just “one-time advice,” but I will refer to it as one-time advice for purposes of this article. If you want to know more about the detailed definition, look at my last post.)

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The DOL’s Regulatory Agenda and a New Fiduciary Rule


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UPDATE: On August 8, I posted this blog article in contemplation of the DOL sending a new fiduciary proposal package to the Office of Management & Budget (OMB) in the White House. One month later, to the day, the receipt of the DOL’s proposed fiduciary rule and prohibited transactions was posted on the OMB’s website. In reviewing my blog article, I think it was spot on in predicting key elements of the fiduciary rule and the exemptions. However, that is still based on my crystal ball, since the changes new proposals won’t be known until they are vetted by the OMB and published in the Federal Register—probably 45 to 60 days from now. As this article suggests, the fiduciary proposal will likely say that rollover recommendations are fiduciary advice and that rollover recommendations to annuities will be subject to more stringent standards.

Key Takeaways

  • The anticipated DOL proposed fiduciary regulation could be sent to the Office of Management & Budget (OMB) in a matter of weeks.
  • The proposal will likely say that a rollover recommendation to a participant in an ERISA governed retirement plan is a fiduciary act.
  • The DOL will also likely propose amendments to prohibited transaction exemptions (PTEs), including to PTE 84-24, the exemption used for fiduciary rollover recommendations into individual annuity contracts.

The DOL has not appealed the decision in the Florida Federal District Court that vacated its fiduciary “re-interpretation.” That re-interpretation, in effect, said that ongoing investment advice to a rollover IRA could be connected to the rollover recommendation to a participant such that the “regular basis” prong of the 5-part fiduciary test would be satisfied. For context, the DOL had previously said that, if a person was not already a fiduciary to a plan, a recommendation to a participant to rollover his or her benefits was a standalone recommendation and therefore did not satisfy the regular basis prong of the 5-part test.

The re-interpretation tried to connect the recommendation to the plan (that is, for the participant to rollover to an IRA) to subsequent investment advice to the rollover IRA and, in that way, to conclude that the rollover recommendation was part of a regular basis advice arrangement. However, the Court held that the “regular basis” test is applied separately to the plan and the IRA and advice to the two could not be connected.

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Rollovers, Regulation, Litigation: Where Are We and What’s Next?


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Key Takeaways

  • The recent decisions on the DOL’s interpretation of fiduciary status are significant but limited in scope. Fiduciary status for plan-to-IRA rollover recommendations, standing alone, has been vacated. But other important transactions, such as IRA transfers, have not.
  • Also, where an advisor is a fiduciary to a plan or participant, and then recommends a rollover, the DOL will likely take the position that the rollover recommendation is a fiduciary act, necessitating the use of PTE 2020-02.
  • In addition, the SEC’s guidance on rollover recommendations by investment advisers and broker-dealers is closely aligned with the DOL’s, particularly on the best interest process, and the relevant plan information, needed to engage in a best interest process.

Let’s take a break from my SECURE 2.0 series of articles to discuss what is going on with the DOL’s fiduciary rule.

The Past

As background, in the preamble to Prohibited Transaction Exemption (PTE) 2020-02, the DOL re-interpreted the 5-part test in its regulation defining fiduciary status for nondiscretionary investment advice. The most significant part of the reinterpretation was the DOL position that recommendations to participants to take distributions from their retirement plans and to rollover to IRAs could be connected to subsequent investment advice to the rollover IRAs to satisfy the “regular basis” prong of the 5-part test.

Under that theory most rollover recommendations would be fiduciary recommendations, which in turn would require satisfaction of the conditions in PTE 2020-02 to obtain relief from the resulting prohibited transaction. (The prohibited transaction is the receipt of compensation from the rollover IRA.)  Among other things, the PTE requires a best interest process that includes comparison of the investments, expenses and services in the plan and the IRA, in light of the needs and circumstances of the participant.

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The DOL’s Fiduciary Interpretation and the Florida Court Decision


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In 2020, the Department of Labor (DOL) issued its Prohibited Transaction Exemption (PTE) 2020-02 to provide an exemption to most prohibited transactions resulting from nondiscretionary fiduciary advice to retirement plans governed by either ERISA or the Internal Revenue Code, or both, as well as nondiscretionary fiduciary advice to IRAs.

The DOL’s Fiduciary Interpretation and Prohibited Transaction Exemption

In the preamble to the PTE, the DOL expanded its view of the nature of the advice that would result in fiduciary status. One of those expanded interpretations was that, in a rollover context, IRAs and plans should be viewed as having a continuous connection because they are retirement assets on a continuum. More specifically, the DOL said that, if an advisor has been providing investment advice on a regular basis to an IRA and then recommends that the IRA owner make a rollover to the IRA, the plan-to-IRA rollover recommendation would be connected to the advice to the IRA that had been provided on a regular basis and, as a result, the advisor would be a fiduciary for the rollover recommendation. Similarly, if an advisor made a plan-to-IRA rollover recommendation and then provided investment advice to the rollover IRA on a regular basis, the advisor would be a fiduciary for the rollover recommendation because the rollover recommendation and the advice to the rollover IRA would be on a continuum. (For the purposes of this article, “advisor” includes broker-dealers and investment advisers, and their representatives, and insurance agents.)

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Best Interest Standard of Care for Advisors #18


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Regulation Best Interest: Rollover Recommendations for Investment Advisers (Rollovers Part 4)

The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Rule, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”

In earlier posts (e.g., Best Interest for Advisors #15), I discussed the application of Reg BI, and its Best Interest Standard of Care, to rollover recommendations. However, the requirement to act in the best interest of a plan participant for rollover recommendations is not limited to broker-dealers; it also applies to investment advisers. That was explained in the SEC’s Interpretation Regarding Standard of Conduct for Investment Advisers, issued June 5, 2019 and effective on July 12, 2019.

Continue reading Best Interest Standard of Care for Advisors #18 →

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