Are you ready for the dol’s full pte rollout?

On December 18, 2020, the Department of Labor (“DOL”) expanded the definition of fiduciary advice under the Employee Retirement Income Security Act (“ERISA”) to include recommendations related to retirement rollovers and IRA investments, including recommendations to a plan participant to rollover assets from a plan to an IRA. The definition was expanded to protect Retirement Investors from conflicts of interest related to compensation surrounding rollovers.

You are now considered an ERISA fiduciary if you meet the following standards:

-       Makes recommendations to a plan, plan fiduciary, plan participant or IRA owner as to the advisability of investing in, purchasing, or selling

securities or other property of the plan or IRA;

-       On a regular basis;

-       Pursuant to a mutual agreement, arrangement or understanding, written or otherwise, that;

-       The advice will serve as a primary basis for investment decisions with respect to plan or IRA assets, and that;

-       The advice will be individualized based on the particular needs of the plan, participant or IRA owner.

In a ThinkAdvisor article from April 29th, the authors stated, “the Department of Labor was extremely clear that rollover advice will almost always be considered fiduciary investment advice under the newly interpreted standard.” For Advisors to continue to receive compensation for providing fiduciary advice to retirement investors under the new interpretation, Advisors must comply with Prohibited Transaction Exemption (“PTE”) 2020-02.

Up to this point, the DOL has enforced the first part of the PTE: that all financial advisors comply with the Impartial Conduct Standards. The Impartial Conduct Standards are:

1.     Give advice that is in the “best interest” of the retirement investors, ensuring the advice meets the best interest standard components of

prudence and loyalty;

2.     Charge no more than reasonable compensation and comply with securities laws related to “best execution”; and

3.     Make no misleading statements about investment transactions or other relevant matters.

Beginning July 2022, all requirements of the DOL will become fully effective. This means that Advisors will have to document specific reasons why a rollover is in a client’s best interest. In the ThinkAdvisor article, the authors note that the SEC’s Regulation Best Interest (“Reg BI”) and the Investment Advisors Act provide information on factors that should be evaluated when considering a retirement rollover. These factors include fees and expenses, investment options and services available for an account. The Advisor must consider and memorialize all the needs of a client to make a best interest recommendation.

In addition to complying with the Impartial Conduct Standards and the upcoming documentation requirements, the DOL will require compliance with the following components to fulfill PTE 2020-02 requirements:

-       Admission of fiduciary status

-       Advanced disclosures

-       Policies and procedures in support of the standards

-       Annual retrospective compliance review

Are you prepared for the final stage of the DOL’s PTE rollout?

If you need assistance complying with the final portion of the rollout, contact Asgard at 631-801-2900.

 

Olivia Scuteri, CAMS

SENIOR COMPLIANCE ANALYST, COMPLIANCE AND RISK MANAGEMENT

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