The Broker-Dealer Regulation & Litigation Digest is a periodic compilation of the most read blog posts published on the Broker-Dealer Law Blog during the last few months. Here you can catch up on what you missed or re-read these popular post.
Posts by :
The Department of Labor (DOL) confirmed on February 12 that the Trump-era Prohibited Transaction Exemption 2020-02 (PTE) would go into effect as scheduled on February 16, 2021. The PTE will likely affect the business of broker-dealers that regularly make investment recommendations to IRA owners, as well as retirement plans and their participants (including rollover recommendations). This is due in part to the requirements of the PTE itself, but also because the rulemaking includes new interpretations that will expand the circumstances under which broker-dealers and their associated persons will be deemed to be advice fiduciaries. (The exemption refers to broker-dealers as “financial institutions” and their associated persons as “investment professionals” and this article uses those terms.)
As a result of these changes, broker-dealers need to re-evaluate whether and when they (and their investment professionals) may be fiduciaries, and where they are fiduciaries, they need to develop compliant practices, policies and procedures.
Late last year, House Ways and Means Committee Chairman Richard E. Neal (D-MA) and Ranking Member Kevin Brady (R-TX) introduced the Securing a Strong Retirement Act of 2020 (SECURE 2.0), a bipartisan legislative proposal that includes changes designed to encourage plan adoption, promote retirement savings, and fix certain plan administration problems.
As retirement income issues gain an expanding focus, we think it is important for broker-dealers, RIAs and their advisors to understand changes that could impact their clients. In this post, we comment on a number of the key provisions.
Continue reading “SECURE Act 2.0: Key Provisions Affecting Retirement Plans”
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.
Welcome to the Broker-Dealer Regulation & Litigation Digest – a periodic compilation of the most popular blog posts from the Broker-Dealer Law Blog during the last few months. If you don’t already receive our posts, you can subscribe to the blog.
The CARES Act includes a provision that can help participants who are affected by the coronavirus (qualified individuals*) by permitting them to take a special coronavirus-related distribution (CRD) this year. As a financial professional who assists plans or plan participants, you should be aware of the rules applicable to CRDs so that you can be in a position to help your clients. That will include, for plans, whether and how to implement CRDs, and for participants, whether to take a CRD. Note: though we discuss this in the context of 401(k) plans, the CRD provision applies to all qualified plans, 403(b) plans and IRAs.
The following chart compares the CRD to other “distributable events.” Following the chart, we address issues that you may wish to discuss with your clients.
Last month the SEC’s Office of Compliance Inspections and Examinations (OCIE) issued its “2019 Examination Priorities.” The release of OCIE’s 2019 Priorities this year was earlier than in years past. In retrospect, the date of issuance being the last day before the vast majority of the SEC staff was furloughed may just be coincidental, but the federal government shutdown allowed the industry more time to study OCIE’s 2019 Priorities for compliance planning for the upcoming year. Another impact of the shutdown and furloughs in an area directly related to OCIE’s first priority is that the SEC’s efforts and the timing of the finalization of the Reg BI proposals have very likely been slowed as well. The recent ending of the SEC furloughs and OCIE’s continuing prioritization of retail and retirement regulatory issues presents us with an opportune time to re-visit these important topics.
If you thought that avoiding fiduciary status would be a slam-dunk after the “new” DOL fiduciary advice rule was vacated, think again. The DOL’s old fiduciary regulation is back and it casts an unexpectedly wide net.
Let’s start with the background. The reinstated fiduciary definition says that a broker-dealer and its advisor (a “broker”) are fiduciaries to a plan if a functional five-part test is satisfied: (1) the broker provides advice about investments for a fee or other compensation, (2) on a regular basis, (3) under a mutual understanding, (4) that the advice will form a primary basis for the plan’s decisions, and (5) that the advice is individualized based upon the plan’s particular needs. For this purpose, a “plan” includes not only an ERISA plan, but also an IRA. (In the context of IRAs, being a fiduciary under the five-part test does not itself implicate a standard of care, but does apply to the applicability of certain prohibited transactions.)
In Parts 1 and 2 of this post, we talked about the current and proposed rules applicable to rollover recommendations by broker-dealers and RIAs. Part 1 discussed the DOL and FINRA rules that apply now. In Part 2, we explained the SEC proposals. In this post, we talk about how to make a compliant rollover recommendation, regardless of which set of rules applies.
(“Rollover recommendation” refers to advice to a retirement plan participant to take a distribution of his or her account and roll it over to an IRA that is being advised by the broker-dealer or RIA.)
In our first post on this topic, we discussed the existing rules that apply to rollover recommendations by broker-dealers and RIAs. This discussion included the ERISA guidance that remains after the 5th Circuit’s decision vacating the Fiduciary Rule, as well as FINRA’s Regulatory Notice 13-45. In this post, we focus on the SEC’s best interest proposals for broker-dealers and RIAs and where that may take firms in the future. In our next, and final, post in this series, we’ll talk about how to make a compliant rollover recommendation.
(As a reminder, by “rollover” recommendation, we mean a recommendation to a retirement plan participant to take a distribution of his or her account and roll it over to an IRA being advised by the broker-dealer or RIA.)
Continue reading “Recommending Rollovers in the Evolving Regulatory Environment (Part 2)”