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June 22, 2023 at 04:51 PM
The next deadline for the Labor Department guidance that declared rollover advice fiduciary advice is days away. Come June 30, investment advisors’ initial retrospective reviews must be filed.
The Trump-era Prohibited Transaction Exemption, or PTE, 2020-02, Improving Investment Advice for Workers & Retirees, subjects firms to more stringent rollover rules.
ERISA attorney Fred Reish of Faegre Drinker told ThinkAdvisor in a recent email exchange that this is the first retrospective review that firms have had to undertake under PTE 2020-02.
“If a firm does it [the restrospective review] on the calendar year, yes, it must be done by June 30,” Reish said.
ERISA attorneys have warned that the PTE-2020-02 is still in effect despite the fact that a federal court in Tampa, Florida, struck down in mid-February the Labor Department’s guidance.
Labor dismissed in mid-May its appeal of that ruling.
Reish explained to ThinkAdvisor where firms now stand in compliance with the latest deadline and what he thinks Labor’s new fiduciary rule — which Labor signaled will likely come in August — will say.
THINKADVISOR: Despite the Florida ruling and Labor dismissing its appeal, you’ve said Labor will include rollover advice as fiduciary advice in its new fiduciary rule — which Labor’s reg agenda states will come in August. Does this impact the June 30 compliance date?
FRED REISH: If an adviser decides, with legal advice, that he or she is not a fiduciary for certain recommendations (e.g., plan-to-IRA rollovers), the adviser may conclude that any such rollover recommendations are not prohibited transactions and therefore do not need to be covered by the review and report.
However, other conflicted recommendations (e.g., probably IRA transfers) would need to be included in the review and report. The report needs to be completed and signed by June 30 for a calendar review.
Are firms ready?
I have talked with clients, large and small, and they have already completed the reports on their annual retrospective reviews, or are far along. So, at least for my clients, the answer is “yes.”
However, I am worried that some smaller firms may believe that the recent Florida court decision on the DOL’s fiduciary interpretation means that they don’t need to do a review and report. If so, they misunderstand the court’s decision.
The court decision dealt only with the issue of whether a plan-to-IRA rollover was a fiduciary recommendation where the recommendation and ongoing services to the rollover IRA could be connected to satisfy the “regular basis advice” prong of the five-part test [under the Employee Retirement Income Security Act].
It is probable that the court’s reasoning also applies to IRA-to-plan and plan-to-plan recommendations. As a result, some advisers may want to take the position that they are not fiduciaries for those purposes. But that position should only be taken with legal advice.
