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The DOL’s New Fiduciary Rule: What We Can Expect

Key Takeaways:

The current DOL fiduciary rule says that a broker-dealer and its registered representatives (advisors) are fiduciaries to a plan under ERISA if a functional 5-part test is satisfied. This same 5-part test applies to determining whether an advisor is a fiduciary to an IRA under the Internal Revenue Code (the Code).

The DOL expanded its interpretation of fiduciary advice in the Preamble to PTE 2020-02 by re-interpreting one of the elements of that 5-part test. As a result, many more broker-dealers and their advisors are fiduciaries under ERISA and/or the Code for their recommendations to retirement investors, including rollover recommendations. While a recent decision by a Federal District Court in Florida set aside the DOL’s position on fiduciary status due to rollover recommendations, it did not change the 5-part test and its application to advice to retirement plans or IRAs. (We will discuss the impact of that holding on rollover recommendations in a future article.)

The DOL’s regulatory agenda indicates that in the near future, the DOL will be proposing a new fiduciary definition and proposing amendments to existing prohibited transaction exemptions (PTEs) to align with the proposed regulation. While we don’t know what the new regulation will say, we anticipate that, at the least, it will include the DOL’s expanded interpretation of fiduciary advice for rollovers (and might go beyond that). We also anticipate that many of the conditions in PTE 2020-02 will be included in the proposals for other exemptions, for example, in PTE 84-24.


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New Year’s Priorities: FINRA Releases its 2023 Report on its Examination and Risk Monitoring Program

Yes, (somehow) it is that time of year again. FINRA recently released its 2023 Report on its Examination and Risk Monitoring Program (the “Report”). As is typical (and this blog has well-covered), it contains a mix of old and new priorities.

Priorities Previously Included: Reg BI and Form CRS, Consolidated Audit Trail (CAT), Cybersecurity, Mobile Applications, Best Execution

New Priorities: An entire new category labeled Financial Crimes, Manipulative Trading, Fixed Income – Fair Pricing, Fractional Shares: Reporting and Order Handling, Regulation SHO

In general, FINRA breaks down the Report into five Categories: (1) Financial Crimes; (2) Firm Operations; (3) Communications and Sales; (4); Market Integrity; and (5) Financial Management. Within these categories, FINRA highlighted certain discrete topics. We discuss FINRA’s highlighted topics at greater length below.

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