Tag Archives: securities

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


DOL, fiduciary, prohibited transaction, rollovers
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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.

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

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A Rollover Recommendation Is a Securities Recommendation


best interest, DOL, FINRA, rollovers, SEC

Key Takeaways

    • The Department of Labor considers a rollover recommendation to be a recommendation to liquidate the investments in a participant’s 401(k) account or to transfer (and change) securities.
    • In addition, as explained in earlier articles, the DOL considers a plan-to-IRA rollover to be a change of account type, e.g., from a 401(k) account to an IRA account.
    • The SEC and FINRA are in alignment with the DOL’s position that a recommendation to roll over is, in effect, a securities recommendation, e.g., to liquidate the investments in the 401(k) account and rollover cash (since 401(k) plans almost never transfer the plan’s investments to an IRA and in some cases, it would not be legally permissible, e.g., collective investment trusts, CITs).
    • This may explain why the DOL, SEC and FINRA all expect broker-dealers and investment advisers to have information about the investments held in a participant’s account, that is, how can a “sell” recommendation be made without knowing the investments that the recommendation covers.

In the preamble to PTE 2020-02, the DOL explained its view that:

 A recommendation to roll assets out of a Title I Plan is necessarily a recommendation to liquidate or transfer the plan’s property interest in the affected assets and the participant’s associated property interest in plan investments.35 Typically the assets, fees, asset management structure, investment options, and investment service options all change with the decision to roll money out of a Title I Plan. Moreover, a distribution recommendation commonly involves either advice to change specific investments in the Title I Plan or to change fees and services directly affecting the return on those investments.

Continue reading A Rollover Recommendation Is a Securities Recommendation →

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