Author: Bruce Ashton

Bruce L. Ashton has more than 35 years of experience handling employee benefits matters. His practice concentrates on representing plan service providers (including RIAs, independent record-keepers, third-party administrators, broker-dealers and insurance companies) in fulfilling their obligations under ERISA. His experience includes representing public and private sector plans and their sponsors, negotiating the resolution of plan qualification issues under IRS remedial correction programs, advising and defending fiduciaries on their obligations and liabilities, and structuring qualified plans, non-qualified deferred compensation arrangements.

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Posts by Bruce Ashton:


State Fiduciary and Best Interest Developments: Texas, Virginia and Montana

Texas, Virginia and Montana are the latest states to enact legislation or rules setting forth a best interest standard for annuity producers in recommending annuities to their customers.  Each state has designed its rule to follow the NAIC’s model regulation concerning suitability in annuity transactions, which requires producers to act in the consumer’s best interest without placing the producer’s financial interest ahead of the consumer’s.  Virginia’s new rule took effect May 1, 2021, while Texas’s and Montana’s rules will take effect on September 1 and October 1, 2021, respectively.

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Upcoming Webinar | DOL Investigations of Registered Investment Advisers Under ERISA – What Should You Know? What Can You Do?

Investigating financial service providers to 401(k), 403(b) and other retirement plans for compliance with ERISA remains an area of focus for the U.S. Department of Labor (DOL) Employee Benefits Security Administration.

Join members of Faegre Drinker’s ERISA financial services team on April 27 from noon to 1:00 p.m. CT, as we explore what registered investment advisers can expect if they are selected for an investigation and best practices for getting through an investigation and negotiating a favorable resolution as quickly and painlessly as possible. While the focus will be on RIAs, this session should be informative for broker-dealers and dual registrants as well.

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Recent State Fiduciary Duty Developments: Idaho, North Dakota and Ohio

Idaho and North Dakota have adopted wholesale the National Association of Insurance Commissioners’ (NAIC) model suitability standard. Ohio also finalized its proposed rule adopting the NAIC model rule. This brings to six the number of states that have adopted the NAIC model (Arkansas, Delaware, Idaho, Michigan, North Dakota and Ohio), and three others have proposed to do so (Kentucky, Maine, and Nebraska).

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FINRA’s Focus on Variable Annuity Switches Continues

On January 8, 2021, without admitting or denying the findings, VALIC Financial Advisors, Inc., (VALIC) entered into a settlement with FINRA Enforcement, through an Acceptance, Waiver and Consent (AWC) where the factual allegation was that between January 1, 2017, and October 31, 2018, the broker-dealer failed to “establish a reasonably designed system and written supervisory procedures for the surveillance of rates of [Variable Annuities] exchanges and for corrective action in the case of inappropriate exchanges, in violation of FINRA Rules 2330(d), 3110, and 2010.” VALIC agreed to a censure and a $350,000 fine. See VALIC Financial Advisors, Inc. AWC No. 2018060548501.

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Recent State Fiduciary Duty Developments: Eight States Have Proposed or Finalized Best Interest Standards for Annuity Producers

In recent months, eight states — Arkansas, Delaware, Kentucky, Maine, Michigan, Nebraska, North Dakota, and Ohio — have proposed or finalized rules setting forth a best interest standard for annuity producers in recommending annuities to their customers. Each state has designed its rule to follow the NAIC’s model regulation concerning suitability in annuity transactions, which requires producers to act in the consumer’s best interest without placing the producer’s financial interest ahead of the consumer’s. The rule also requires producers, prior to recommending an annuity, to disclose the scope and terms of their relationship to the consumer, how the producer is being compensated, and any material conflicts of interest. Notably, the rule does not create a fiduciary obligation or relationship with the consumer, and producers are not subject to civil liability for breaching any fiduciary standard of conduct.

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The Second Phase of the SEC’s Reg BI Exams

Closing out 2020, the SEC’s Division of Examinations (OCIE) issued a Statement on Recent and Upcoming Regulation Best Interest Examinations. There the Division of Examinations announced its intention “to begin its next phase [of Reg BI examinations] by conducting more focused examinations … beginning in January 2021.”

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The DOL’s Fiduciary Interpretation and Exemption: Impact on Rollover Recommendations

On December 18, 2020, the Department of Labor published its expansion of the fiduciary interpretation and exemption for conflicted advice in the Federal Register. (Prohibited Transaction Exemption 2020-02, Improving Investment Advice for Workers and Retirees.) The exemption will be effective on February 16, 2021. The interpretation is effective immediately.

Since the effective date for the exemption is after the inauguration of the Biden administration, it is almost certain that the effective date will be further delayed. During that delay, we think it is likely the exemption will be revised or possibly withdrawn. But, it is just as likely that the expanded definition of fiduciary advice for rollover recommendations will be retained and possibly expanded. That could make life more difficult for broker-dealers, investment advisers and insurance companies. While these rules will affect all of those industries, this article focuses on the impact of the likely outcomes on broker-dealers.

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Recent State Fiduciary Duty Developments: Alabama and Rhode Island Issue Regulations

Alabama and Rhode Island are the most recent states to issue regulations setting forth a best interest standard for annuity producers in recommending an annuity to their customers. Both regulations follow the National Association of Insurance Commissioners’ (NAIC’s) model regulation by requiring producers to act in the consumer’s best interest and not place the producer’s financial interest ahead of the consumer’s. Prior to recommending an annuity, producers are required to disclose the scope and terms of their relationship with the consumer, how the producer is being compensated and any material conflicts of interest. Like the NAIC model regulation, the Alabama and Rhode Island regulations do not create a fiduciary obligation or relationship with the consumer and producers are not subject to civil liability for breaching any fiduciary standard of conduct.

The Alabama regulation is still in its proposed form, with comments due December 7, 2020. If finalized without delay, the regulation would take effect on January 1, 2021. The Rhode Island regulation has been finalized and takes effect on April 1, 2021. A copy of the updated state chart can be found here.