Page 50 - Investment Advisor April/May 2022

COMPLIANCE COACH

By Thomas D. Giachetti

The DOL Rule Is Finally Here. You Must Be Ready

Advisors have an extension on specific rollover documentation and
disclosure requirements.

T he Department of Labor’s tions, there are extensions to keep in

mind. These include:
Transaction
Prohibited
Exemption 2020-02 became
• Feb. 1-June 30: All requirements of
effective on Feb. 16, 2021. But the Labor the DOL fiduciary rule come into effect,
Department provided transitional relief except the requirement to document
through Jan. 31, 2022 — as well as spe- and disclose the rationale behind the
cific relief until June 30, 2022, which is rollover recommendation.
important for advisors to know. Despite the safe harbor that expires
Mainly, the DOL agreed not to enforce on June 30, we recommend that firms
until June 30, 2022, the specific rollover implement the internal rollover analy-
documentation and disclosure require- sis and corresponding disclosure process
ments (i.e., internal rollover analysis and statements about the rollover now. This is because the Securities and
corresponding reasons for rollover rec- and corresponding investment Exchange Commission has explicitly indi-
ommendation) as required by the PTE. transaction(s). cated that it views rollover recommen-
• Seeking to obtain the best dations as fiduciary recommendations
ROLLOVER BACKGROUND execution of the investment under the Advisers Act, totally separate
If an advisory firm recommends that transaction(s) reasonably available and apart from ERISA and the DOL rule.
a client roll over their retirement plan under the circumstances. The SEC has included this issue on recent
assets into an account to be managed by Further, the firm will need to provide examinations (confirming that such roll-
the firm (including from a current IRA), a written fiduciary acknowledgment. over recommendations were made in the
this creates both a conflict of interest This means it needs to provide a corre- best interest of the client).
and a prohibited transaction under the sponding written disclosure to the client This also begins the time period that
above-referenced PTE if the firm will acknowledging that the firm and its rep- will need to be covered by your annual
earn new (or increase its current) com- resentatives are fiduciaries under ERISA, written Retrospective Review, which
pensation, or derive some other added the Code or both, as applicable. A written should cover the trailing 12-month period,
economic benefit from such a rollover. description regarding the services to be and must be completed within six months
In conjunction with any such rollover provided and the firm’s (and representa- of the end of the review period. The initial
recommendation, the firm should rely on tive’s) material conflicts of interest must Retrospective Review will need to cover
the PTE exemptions below. For an exemp- also be provided to the client. the time period of approximately Feb.
tion, the firm will need to demonstrate The firm also is required to establish, 1, 2022 to Jan. 31, 2023. It must be com-
and document why such a recommen- maintain and enforce written policies and pleted by approximately July 30, 2023.
dation was in the client’s best interest, procedures prudently to ensure that it and • July 1: The above internal rollover
which can include the client’s receipt of its representatives comply with the ICS. analysis and corresponding disclosure
added services (i.e., planning and consult- Keep in mind the annual Retrospective requirement must commence, which is
ing services), lower fund expense ratios, Review that is intended to assist in the last aspect of the DOL rule that
more advantageous fund selection, etc. detecting and preventing violations of becomes effective, which means the rule
Compliance with Impartial Conduct and achieving compliance with the ICS will be fully implemented at this point
Standards is achieved by: and the policies and procedures adopted (pending further delays).
• Providing investment advice that is for compliance with the PTE.
in the client’s best interest. Thomas D. Giachetti is chairman of the
• Charging only reasonable IMPORTANT DATES Investment Management and Securities
compensation. Although the deadline is past for many Practice Group of Stark & Stark. He can be Adobe Stock
• Making no materially misleading Labor Department transitional exemp- reached at [email protected].

48 INVESTMENT ADVISOR APRIL/MAY 2022 | ThinkAdvisor.com