Page 50 - Investment Advisor May 2021

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].

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