The DOL’s expanded definition of fiduciary advice is described in the preamble to PTE 2020-02.
When conflicted fiduciary advice is given to retirement investors (that is, retirement plans, participants (including rollovers), and IRA owners), it results in prohibited transactions under the Internal Revenue Code and ERISA. But the PTE provides relief for conflicted non-discretionary recommendations.
While most of the focus of the literature (and of these blog articles) about rollover recommendations has been on the DOL’s fiduciary interpretation and PTE 2020-02, the SEC has, for the most part, harmonized its best interest/fiduciary requirements for rollover recommendations with those of the DOL.
This article discusses the two-part harmony between the agencies, and the areas of disharmony.
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.
For example, a rollover recommendation will ordinarily be nondiscretionary fiduciary advice and result in a prohibited transaction under both ERISA and the Internal Revenue Code (i.e., the compensation earned from the rollover IRA). But, since the recommendation is nondiscretionary, PTE 2020-02 provides relief, but only if its conditions are met.