Page 50 - Investment Advisor May 2021
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THE COMPLIANCE COACH

                By Thomas D. Giachetti




                DOL Rule Redux


                By Dec. 20, broader “prohibited transaction exemption” rules will be
                mandatory and advisors will need to comply.



                       he Department of Labor rule —                                als are fiduciaries under ERISA and/or the
                       much to the chagrin of the advi-                             Code, as applicable, and a written descrip-
                T sory  community  —  is  back  in                                  tion of corresponding conflicts of interest.
                a new “prohibited transaction exemp-                                  • Rollover analysis and disclosure:
                tion.” Although the  PTE became  effec-                             Document and disclose the reasons that
                tive on Feb. 16, 2021, as discussed below,                          a recommendation to roll over assets is
                full compliance will not be required                                in the retirement investor’s best  inter-
                until Dec. 20, 2021.                                                est. This requirement extends to recom-
                  PTE requirements will seem similar                                mended rollovers from an ERISA plan to
                to those of the prior rule. To gain a bet-                          another ERISA plan or IRA; from an IRA
                ter understanding of the PTE and how                                to an ERISA plan; from an IRA to anoth-
                to comply with its requirements, I sat                              er IRA; or from one type of account to
                down with my colleague Ryan Walter, an                              another (e.g., from a commission-based
                ERISA specialist.                 dation to roll assets out of an ERISA plan   account to a fee-based account).
                  Ryan advised that the PTE allows   is fiduciary investment advice if pro-  • Policies  and  procedures:
                investment advice fiduciaries to receive   vided by a person who satisfies all of the   Establish, maintain and enforce writ-
                what would otherwise be prohibited   requirements of the above five-part test.  ten policies and procedures prudently
                compensation.                       The DOL has indicated that until Dec.   designed to ensure that the financial
                  An investment advice fiduciary is   20, 2021, an investment advice fiduciary   institution and its investment pro-
                defined as a person who provides invest-  can comply by simply adhering to the   fessionals comply with the Impartial
                ment advice for a fee or other compensa-  PTE’s Impartial Conduct Standards:  Conduct Standards.
                tion, direct or indirect, with respect to any   • Providing investment advice that   • Retrospective  review: Conduct
                money or other property of a plan, if the   is in retirement investors’ best interest;  a retrospective review, at least annual-
                following facts and circumstances apply:  • Charging only reasonable compen-  ly, that is reasonably designed to assist
                  • The person renders advice as to the   sation;                   the financial institution in detecting and
                value of securities or other property, or   • Making no materially misleading   preventing violations of, and achieving
                makes recommendations as to the advis-  statements about the investment trans-  compliance with, the Impartial Conduct
                ability of investing in, purchasing or sell-  action and other relevant matters; and  Standards and the policies and procedures
                ing securities or other property;   • Seeking to obtain the best execution   governing compliance with the PTE.
                  • does it on a regular basis;   of the investment transaction reason-  Over the coming months, advisory
                  • pursuant to a mutual agreement,   ably available under the circumstances,   firms  should  be  working on  achiev-
                arrangement or understanding with the   as required by federal securities laws.  ing compliance with the above pend-
                plan, plan fiduciary or individual retire-  After that date, compliance with the   ing required broader requirements. The
                ment account owner;               broader requirements of the PTE shall   firm should be prepared to demonstrate
                  • and that the advice will serve as a pri-  become mandatory, including:  such compliance in regulatory examina-
                mary basis for investment decisions with   • Adherence to the above Impartial   tions. I know that Ryan will.
                respect to the plan or IRA assets; and  Conduct Standards.            And yes, the DOL does conduct exams
                  • that the advice will be individual-  • Written disclosure: Prior to engag-  of investment advisors.
                ized based on particular needs of the   ing in a transaction pursuant to the PTE,
                plan or IRA.                      the investment advice fiduciary must pro-  Thomas D. Giachetti is chairman of the
                  The  above  analysis  of  facts  and  cir-  vide written disclosure to the retirement   Investment Management and Securities
                cumstances also  applies  to rollover   investor acknowledging that the financial   Practice Group of Stark & Stark. He can be   Adobe Stock
                recommendations. Thus, a recommen-  institution and its investment profession-  reached at [email protected].



             48 INVESTMENT ADVISOR MAY 2021 | ThinkAdvisor.com
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