Page 34 - Investment Advisor - December 2023

an almost 50-year-old regulation — What’s a statutory employee? cover certain transactions involving
known as the “five-part test” — defining Basically “a career agent — in other pooled employer plans and transactions
when a person is deemed to provide words, an agent who’s contracted to sell involving ‘pure’ robo-advice providers,”
fiduciary investment advice under the the products of one insurance company,” the K&L Gates attorneys explain.
Employee Retirement Income Security Reish explained. As a statutory employ- Proposed amendment to PTE 2020-02
Act, the K&L Gates attorneys explain. ee, “they can then be in that insurance in Labor’s new rule also includes changes
Under the five-part test, the attorneys company’s 401(k) plan or get health care and clarifications regarding the exemp-
explain, a person is a fiduciary only if they: benefits because they are deemed to be tion’s conditions, such as clarifications
• Render advice as to the value of an employee,” he said. regarding the fiduciary acknowledgment
securities or other property, or make The opposite, then, is an “indepen- requirement and a new requirement to
recommendations as to the advisability dent producer or agent,” Reish contin- provide a written statement of the best
of investing in, purchasing, or selling ued. “The difference being, from the interest standard of care owed by the
securities or other property; DOL perspective, they view employees investment professional to the retirement
• On a regular basis; and statutory employees as being close investor, the K&L Gates attorneys write.
• Pursuant to a mutual agreement, enough to the insurance companies that PTE 2020-02, which was partly over-
arrangement, or understanding with the the insurance company can act if they turned by a Florida district court deci-
plan or a plan fiduciary that supervise their activities — and there- sion, still faces a challenge in court.
• The advice will serve as a prima- fore the insurance company can sign on In February 2022, the Federation of
ry basis for investment decisions with as a co-fiduciary under PTE 2020-02.” Americans for Consumer Choice, an
respect to plan assets; and However, the insurance industry, “and advocacy group representing indepen-
• That the advice will be individualized I think rightly so, has convinced the dent insurance distributors, filed its
based on the particular needs of the plan. Department of Labor that independent challenge in the U.S. District Court for
Notably, the K&L Gates attorneys agents aren’t close to the insurance com- the Northern District of Texas.
point out, Labor’s new “change from panies — they have 5 or 10 different The Federation’s case asked the court
the five-part test’s ‘regular basis’ prong insurance companies to sell different to vacate PTE 2020-02 in its entirety
to persons providing investment recom- products from and they get to pick which and enjoin DOL from implementing or
mendations ‘on a regular basis as part ones they want to sell. So there’s real- enforcing it in any manner.
of their business’ (as opposed to regular ly no hands-on supervision by any one Kim O’Brien, president of FACC, told
advice to any particular client) would insurance company,” Reish explained. me that the trade group was “given the
accomplish DOL’s goal of making one- So for independent agents, “they’re go-ahead” in early November to brief
time advice, such as rollover advice, still under 84-24, but it’s beefed up — a the Texas federal court on Labor’s newly
covered by the fiduciary standard.” lot; this will be the single biggest fight of proposed fiduciary rule.
everything to do with these new propos- “Our suit is very much alive, chal-
InsUrAnCe AGents & tHe ‘sInGle als,” Reish opined. lenging the preamble to PTE 2020-02,”
BIGGest FIGHt’ Why? “Not only must the indepen- O’Brien told me in a Nov. 10 email mes-
Another significant change in Labor’s dent agent do more, … but, the insur- sage. Labor’s “current guidance on who
fiduciary package is the changes to ance company selling through that is a fiduciary is contained in the preamble
Prohibited Transaction Exemption independent agent doesn’t have to be a to PTE 2020-02, which is theoretically in
84-24. “Historically, if an insurance co-fiduciary but they have heightened force today. We are arguing the current
agent became a fiduciary by virtue of supervisory responsibility.” guidance is overreaching and attempts to
recommendations, they could use [PTE] Bottom line, according to Reish: turn most agents into fiduciaries contrary
84-24 to be able to get their commis- “Nobody under 84-24, under these to ERISA and the Fifth Circuit decision.”
sion,” Reish explained. proposals, going forward is going to It’s FACC’s “position that all these
The new proposed amendments to be happy.” attempts by DOL to turn everyday agents
84-24, however, “break insurance agents into fiduciaries cross the line and [are] not
into two categories,” Reish said. In Pte 2020-02 allowed by ERISA,” O’Brien explained.
one category, which Labor refers to as Relief under PTE 84-24 “would also “As we say in our pleadings, the DOL
employees or statutory employees of require compliance with ‘impartial keeps trying to do the same thing in dif-
insurance companies, “they have to go conduct standards’ that match require- ferent ways, which we characterize as
over to PTE 2020-02 — they’re no longer ments in PTE 2020-02,” according to the ‘same old wine in a new bottle.’”
under 84-24 as proposed.” (PTE 2020- the K&L Gates attorneys.
02 is the Trump-era rule that declared PTE 2020-02, meanwhile, under the Washington Bureau Chief Melanie Waddell
rollover advice fiduciary advice.) new proposal, “would be expanded to can be reached at [email protected].

32 Investment AdvIsor December 2023 | ThinkAdvisor.com