Wondering how the new DOL PTE 2020-02 requirements apply to investment advisers already acting as fiduciaries? Read on.
On January 31, the U.S. Department of Labor (DOL) will start enforcing Prohibited Transaction Exemption (PTE) 2020-02, the new rule for investment advice fiduciaries concerning the rollover and retirement plan advice they provide. Later this year, on June 30, the DOL will start enforcing the documentation and disclosure requirements for rollover advice specifically.
Regulatory changes are often complicated and confusing, especially for independent investment advisers who are already acting as fiduciaries. The bottom line is that RIA firms, independent or not, must understand and adhere to the new DOL PTE 2020-02 requirements. Although investment advisers already meet their fiduciary duty under SEC regulations, the DOL has stated they must take extra measures to comply with PTE 2020-02.
The DOL has outlined a series of exemptions and FAQs to clarify these requirements. As you navigate the new rollover fiduciary rule and prepare for the upcoming January 31 and the ultimate June 30 deadline, keep these highlights in mind.
1. Adopt and Implement Updated Policies and Procedures
Any regulatory change should prompt a review of existing policies and procedures. Make sure you understand the new rollover fiduciary rule and update your policies manual accordingly. Most importantly, investment advisers need to follow their policies and procedures after updating them.
2. Comply with the Impartial Conduct Standards
The Impartial Conduct Standards require advisers to act in investors’ best interest, charge reasonable fees, and avoid misleading statements about investment transactions and related matters. RIA firms should already be complying with the Impartial Conduct Standards. Like the advice to maintain and enforce updated policies and procedures, this is a reminder of a regulatory obligation you should already be meeting.
3. Provide Written Disclosure to Clients
Given the new rollover fiduciary rule, take a close look at your existing disclosures. Advisers must disclose the scope of their relationship with investors and any material conflicts of interest. Also, it’s crucial to acknowledge your fiduciary status.
4. Provide Written Disclosure to Investors About Why the Rollover Recommendation Is in Their Best Interest
Make sure your disclosures clearly explain the reasons why a rollover is in your clients’ best interest. That explanation needs to be documented and disclosed on every single rollover recommendation you make to investors.
5. Conduct an Annual Retrospective Review
The purpose of this retrospective review is to catch any errors and any conflicts that occur as part of the rollover process. Periodically testing your policies and procedures can help ensure you’re meeting regulatory obligations.
Keep these five highlights close at hand as the January 31 deadline quickly approaches. And if you need help navigating the new DOL PTE 2020-02 requirements, please get in touch. We’d be happy to hear from you.
About Our Guest Blogger: Parham Nasseri is VP of regulatory strategy at InvestorCOM, a leading compliance software provider to some of North America’s largest wealth managers, asset managers, and insurers. Our motto is simple: we provide our clients with compliance pain relief. And our latest solution, RolloverAnalyzer, is purpose-built to help advisers and wealth firms consistently analyze rollovers, meet the PTE 2020-02 requirements, compare fees, and document and disclose their analysis with confidence. Get in touch at firstname.lastname@example.org.