The Department of Labor rule — much to the chagrin of the advi- sory community — is back ina new “prohibited transaction exemption.” Although the PTE became effective on Feb. 16, 2021, as discussed below,full compliance will not be requireduntil Dec. 20, 2021.
PTE requirements will seem similarto those of the prior rule. To gain a better understanding of the PTE and howto comply with its requirements, I satdown with my colleague Ryan Walter, anERISA specialist.
Ryan advised that the PTE allowsinvestment advice fiduciaries to receivewhat would otherwise be prohibitedcompensation.
An investment advice fiduciary isdefined as a person who provides investment advice for a fee or other compensation, direct or indirect, with respect to anymoney or other property of a plan, if thefollowing facts and circumstances apply:• The person renders advice as to thevalue of securities or other property, ormakes recommendations as to the advisability of investing in, purchasing or selling securities or other property;
• does it on a regular basis;
•pursuant to a mutual agreement,arrangement or understanding with theplan, plan fiduciary or individual retirement account owner;
• and that the advice will serve as a pri-
mary basis for investment decisions with
respect to the plan or IRA assets; and
• that the advice will be individual-
ized based on particular needs of the
plan or IRA.
The above analysis of facts and cir-
cumstances also applies to rollover
recommendations. Thus, a recommen-
dation to roll assets out of an ERISA plan
is fiduciary investment advice if pro-
vided by a person who satisfies all of the
requirements of the above five-part test.
The DOL has indicated that until Dec.
20, 2021, an investment advice fiduciarycan comply by simply adhering to thePTE’s Impartial Conduct Standards:
•Providing investment advice thatis in retirement investors’ best interest;
• Charging only reasonable compensation;
•Making no materially misleading
statements about the investment trans-
action and other relevant matters; and
• Seeking to obtain the best execution
of the investment transaction reason-
ably available under the circumstances,
as required by federal securities laws.
After that date, compliance with thebroader requirements of the PTE shallbecome mandatory, including:
• Adherence to the above ImpartialConduct Standards.
• Written disclosure: Prior to engag-
ing in a transaction pursuant to the PTE,
the investment advice fiduciary must pro-
vide written disclosure to the retirement
investor acknowledging that the financial
institution and its investment profession-
als are fiduciaries under ERISA and/or the
Code, as applicable, and a written descrip-
tion of corresponding conflicts of interest.
• Rollover analysis and disclosure:Document and disclose the reasons thata recommendation to roll over assets isin the retirement investor’s best interest. This requirement extends to recommended rollovers from an ERISA plan toanother ERISA plan or IRA; from an IRAto an ERISA plan; from an IRA to another IRA; or from one type of account toanother (e.g., from a commission-basedaccount to a fee-based account).
•Policies and procedures:Establish, maintain and enforce written policies and procedures prudentlydesigned to ensure that the financialinstitution and its investment professionals comply with the ImpartialConduct Standards.
• Retrospective review: Conducta retrospective review, at least annually, that is reasonably designed to assistthe financial institution in detecting andpreventing violations of, and achievingcompliance with, the Impartial ConductStandards and the policies and proceduresgoverning compliance with the PTE.
Over the coming months, advisoryfirms should be working on achieving compliance with the above pend-ing required broader requirements. Thefirm should be prepared to demonstratesuch compliance in regulatory examinations. I know that Ryan will.
And yes, the DOL does conduct examsof investment advisors.
Thomas D. Giachetti is chairman of theInvestment Management and SecuritiesPractice Group of Stark & Stark. He can bereached at firstname.lastname@example.org.
THE COMPLIANCE COACH
By Thomas D. Giachetti
DOL Rule Redux
By Dec. 20, broader “prohibited transaction exemption” rules will be
mandatory and advisors will need to comply.