Page 38 - Investment Advisor January/February 2022

“especially procedures to identify and DOL FIDUCIARY RULE see proposed tightening via the impo-
mitigate conflicts of interest. The SEC President Joe Biden on Jan. 4 renomi- sition of new limits and conditions on
can charge firms with Reg BI viola- nated ERISA attorney Lisa Gomez to some existing PTEs,” such as PTE 84-24,
tions if their policies and procedures are head the Labor Department’s Employee which applies to insurance sales (life
insufficient, even if it has not identified Benefits Security Administration, the insurance and variable, fixed indexed
specific problematic transactions.” agency overseeing retirement plan rules. and fixed rate annuities) and to receipt
If confirmed by the full Senate, Gomez of commissions.
FORM CRS ‘WAKE-UP CALL’ will be the point person on helping Labor also has indicated that it intends
The SEC’s Dec. 17 statement on Form CRS Labor shepherd a new fiduciary rule. to revisit the conditions of PTE 2020-
compliance “served as a wake-up call to Phyllis Borzi, former head of EBSA, 02, dubbed “Improving Investment
advisors,” said Amy Lynch, founder and told me in a recent email message that Advice for Worker & Retirees,” Borzi
president of FrontLine Compliance, as it she believes EBSA “is pretty far along said. That exemption, intended to align
“let the industry know where the SEC sees in its thinking about (if not drafting) the with the SEC’s Regulation Best Interest,
firms running afoul of the requirements.” structure” of the new fiduciary rule. was allowed to take effect by the Biden
The agency, according to the administration last February.
statement, “saw a lot of poorly ‘The release of a new proposed Labor may also “even propose an
written Forms” while conducting additional PTE,” Borzi said.
targeted exams in 2021. fiduciary definition and
“Firms should use this time (as related prohibited transaction LEVEL THE PLAYING FIELD
in Q1 of this year) to review and EBSA, as a general matter, Borzi
update their Form CRS so it meets exemptions is imminent, said, “is concerned about the
all the requirements as described” perhaps within 60 days.’ unlevel playing field between
in the SEC statement and instruc- conflicted recommendations
tions to the form, Lynch said. regarding insurance products
“Updated filings are due by March —Fred Reish of Faegre Drinker and securities. “As flawed as
31, so now is the time.” many of us believe Reg BI is, at
While Form CRS, often referred to Fred Reish of Faegre Drinker said that least it imposes some limits on conflict-
as Form ADV, Part 3, is not required to ”the release of a new proposed fiduciary ed advice when investments in securi-
be updated annually, the form’s “update definition and related prohibited trans- ties are recommended,” Borzi said.
status is dependent upon material action exemptions is imminent, perhaps In marked contrast, she continued,
changes to its disclosures.” within 60 days.” However, “that could the National Association of Insurance
Because firms are now also complet- only refer to submitting those propos- Commissioners’ “model law (which is
ing updates to Form ADV for Q1 “and als to the White House” for review by only applicable when and to the extent
customer statements also go out at end the Office of Management and Budget, each state adopts it and with no appar-
of Q1, now would be a good time to which could take another 60 to 90 days. ent enforcement mechanism) makes it
assess Form CRS disclosures and update Borzi said she expects Labor to pro- quite clear that it is merely a codifica-
if changes needed,” Lynch advised. “The pose amendments “to the basic fiduciary tion of the pretty useless [FINRA] suit-
new Form CRS could be delivered to cus- definition to correct the obvious defects/ ability standard.”
tomers along with the Q1 statements.” loopholes in the five-part test [on who’s How will Labor “propose to impose
Schroeder added that according to a fiduciary] that have clearly emerged greater accountability for conflicted rec-
the SEC’s guidance, “attempts to stream- since the initial reg was issued in 1975.” ommendations of insurance products
line/tailor the Form CRS requirements Labor also likely will propose clarifica- than is currently the case?” Borzi won-
to a firm’s business model will not be tions “in the rollover context, limited by dered. “I wouldn’t be surprised if the
met with approval.” the legal constraints they face based on proposed expansion of PTE 2020-02
While it is a “very real challenge to the odd statutory structure where DOL includes bringing some or all insurance
include all the information that Form CRS has interpretive and administrative juris- products within its purview, but at the
requires in an easy-to-read, concise for- diction over the fiduciary definition and very least, I expect they will impose
mat,” Schroeder said, “the SEC has signaled interpretations regarding IRA rollovers, adding the impartial conduct standards
that it will not tolerate omitting infor- but [the Department of the] Treasury to PTE 84-24 and some of the other
mation, modifying prescribed language, has the enforcement authority through older PTEs,” she said.
changing the order or format of the disclo- imposition of the excise tax” for prohib-
sures or referring to more detailed disclo- ited transaction exemptions, or PTEs. Washington Bureau Chief Melanie Waddell can
sures outside the document.” “Undoubtedly,” Borzi said, “we will be reached at [email protected].

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