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Fred Reish, ERISA lawyer

Regulation and Compliance > Federal Regulation > DOL

Small RIAs Likely Breaking New DOL Rollover Rule Without Knowing It: ERISA Lawyer

By Melanie Waddell

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Small advisory firms may be inadvertently violating the more stringent rollover rules put in place by the Labor Department’s new fiduciary prohibited transaction exemption (PTE) 2020-02, Improving Investment Advice for Workers & Retirees, which became effective on Feb. 16.

Advisory firms are now required to provide “retirement investors” with the specific reasons why a rollover or transfer of their retirement money is in the best interest of the retirement investor. The rollover requirements went into effect July 1.

PTE 2020-02 regulates fiduciary recommendations to retirement plans, participant accounts and IRAs.

4 Tips to Avoid Rollover Problems Under New DOL Rule

Saving for Retirement

“The covered advice includes recommendations to plan participants to roll their plan accounts to IRAs and recommendations to IRA owners to transfer their accounts to the advisor’s firm,” according to ERISA attorney Fred Reish, partner at Faegre Drinker.

Advisors and broker-dealers “need to provide to the participant, in writing, the specific reasons why a rollover is in [their] best interest,” Reish told ThinkAdvisor in a previous interview.

In a more recent interview, Reish told ThinkAdvisor that “many small RIA firms (eg., 5 advisors or less … and perhaps a few more than that) are not aware of PTE 2020-02 or its requirements. That is partially the case because those firms don’t regularly do retirement plan work and are unaware that the DOL regulates them.”

For instance, unlike most broker-dealers and large investment advisory firms, these small firms “do not receive information about DOL guidance and do not attend conferences with DOL programs. In addition, they usually do not have an in-house attorney or a dedicated compliance officer.”

Advisors at these small firms “do recommend plan-to-IRA rollovers and IRA-to-IRA transfers,” Reish continued. “I am concerned that there may be a large number of noncompliant recommendations to roll over or to transfer IRAs. This is not because of an intention to defy or violate the rules, but instead is due to a lack of awareness of DOL-issued rules.”

Noncompliant recommendations, Reish said, “result in prohibited transactions, which can result in loss of compensation, interest and penalties.”

The Labor Department and the investment advisory industry “need to consider how to better educate small investment advisory firms, and need to have a way to bring those firms into compliance without penalties,” Reish said.

Melanie Waddell

@Think_MelanieW

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