Page 52 - Investment Advisor September 2022

COMPLIANCE COACH

By Thomas D. Giachetti

The New Rollover Rule Is Here

Financial advisors and their firms must now adhere to these key requirements.

he new Department of Labor rule agreements and fees policy, and wrap fee/
is now in effect. Is your firm doing asset-based pricing policy, among others.
Teverything required to comply The written report is required to be
with the new retirement rollover require- reviewed by a senior executive officer
ments as set forth in PTE 2020-02? I of the firm. This retrospective review,
recently sat down with my colleague, Joe report and certification must be com-
Antonakakis, to discuss compliance with pleted no later than six months after the
the new rule. He explained that the rule end of the period covered by the review.
is designed to promote investment advice The initial retrospective review must be
that is in the best interest of retirement completed by July 1, 2023.
investors (e.g., plan participants and ben- How can I obtain information about
eficiaries, and IRA owners). an individual’s existing plan when con-
The exemption conditions empha- educational purpose. Such materials do ducting the best interest analysis, and
size mitigating conflicts of interest not constitute a recommendation. what if a client cannot or will not pro-
and ensuring retirement investors are Client affirmation and disclosure. vide information? The DOL’s Employee
receiving advice that is both prudent Whether you provide a rollover recom- Benefits Security Administration provid-
and in their best interest. It also express- mendation or provide only educational ed guidance on this and other issues in
ly covers prohibited transactions result- materials, your client should acknowledge its April 2021 FAQs. To satisfy the docu-
ing from both rollover advice and advice the results of your analysis or discussion. mentation requirement for rollovers
on how to invest assets within a plan or If you provide a recommendation, you are from an employee benefit plan to an IRA,
IRA. If your firm plans to make a recom- required to provide a written disclosure investment professionals and financial
mendation on whether a client should to the client of the results and factors institutions should make diligent and
or should not roll over their assets, you used to complete the best interest analysis prudent efforts to obtain information
are acting as a fiduciary and are required discussed above. If you provide only edu- about the existing employee benefit plan
to conduct a thorough analysis, and doc- cational materials and a client determines and the participant’s interests in it.
ument and disclose the specific reasons on their own to conduct a rollover, the cli- Such information should be read-
that any rollover recommendation is in ent should acknowledge that the rollover ily available as the result of Labor
the client’s best interest. was directed solely by them, and that that Department regulations mandating dis-
Several factors can be considered in the firm did not solicit the rollover or closure of plan-related information to
this analysis, including alternatives to a make any recommendation. the plan’s participants. If the retirement
rollover, the fees and expenses associated Retrospective review. A require- investor won’t provide the informa-
with the accounts, whether administrative ment of the rule is the pending retro- tion, even after a full explanation of its
expenses are covered, the different levels spective review requirement. To comply, significance, and the information is not
of services and investments available, the a firm is required to catalog compliance otherwise readily available, the financial
long-term impact of any increased costs, policies and procedures throughout the institution and investment professional
why the rollover is appropriate despite year and conduct an annual review. should make a reasonable estimation of
any additional costs, and the impact of The review extends past rollover expenses, asset values, risk, and returns
economically significant investment fea- recommendations into all policies and based on publicly available information.
tures such as surrender schedules and procedures regarding the firm’s fiducia- Am I required to share the outcome
index annuity cap and participation rates. ry standard of conduct, including the of a rollover analysis with the client?
No recommendation. As an alterna- firm’s mutual fund share class selection Yes. If you provide a recommendation,
tive to making a recommendation, your policy, fiduciary duty policy, portfolio you are required to provide a written
firm can provide educational materials to management policy, retirement accounts disclosure to the client of the specific
a client. These materials should be gen- and ERISA matters policy, portfolio reasons that the recommendation to roll Adobe Stock
eral in nature and should serve a strictly valuation/reconciliation policy, advisory over assets is in their best interest.

48 INVESTMENT ADVISOR SEPTEMBER 2022 | ThinkAdvisor.com