Compliance December 15, 2020

DOL Publishes Final Fiduciary Prohibited Transaction Exemption

The final rule confirms the reinstatement of the traditional five-part test for determining fiduciary status, though it does not definitively state that advice regarding IRA rollovers necessarily triggers fiduciary status.

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The U.S. Department of Labor (DOL) has published the final version of a new prohibited transaction exemption.

The text of the exemption notice stretches to nearly 300 pages, so it will naturally take some time for the full implications to be realized. However, a preliminary review suggests the final version resembles the version proposed this summer. The text of the notice also reiterates the DOL’s reinstatement of the traditional “five-part test” for determining fiduciary status, and the package includes the establishment of a new prohibited transaction exemption that aligns with the Securities and Exchange Commission (SEC)’s Regulation Best Interest (Reg BI).

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Under the DOL’s five-part test, for assistance or instruction to constitute “fiduciary investment advice,” a financial institution or investment professional who is not a fiduciary under another provision of the law must trigger all of the following stipulations:

  • Render advice to the plan as to the value of securities or other property, or make recommendations as to the advisability of investing in, purchasing or selling securities or other property;
  • On a regular basis;
  • Pursuant to a mutual agreement, arrangement or understanding with the plan, plan fiduciary or individual retirement account (IRA) owner, that;
  • The advice will serve as a primary basis for investment decisions with respect to plan or IRA assets, and that;
  • The advice will be individualized based on the particular needs of the plan or IRA.

According to a fact sheet shared by the DOL, advice pertaining to IRA rollovers will not necessarily trigger fiduciary status under the new paradigm. Here’s how the fact sheet describes whether rollover-related guidance is in fact fiduciary investment advice: “Advice to take a distribution from an employee benefit plan and roll over the assets to an IRA may be an isolated and independent transaction that would fail to meet the regular-basis prong of the five-part test. On the other hand, advice to roll over employee benefit plan assets can occur as part of an ongoing relationship or an anticipated ongoing relationship that an individual enjoys with his or her advice provider.”

It is likely that this provision of the rulemaking will receive significant scrutiny in the coming days and weeks, given the interest consumer protection organizations have in addressing potential abuse related to IRA rollovers into higher-fee products and services.

According to the fact sheet, the new proposed class exemption would be available to registered investment advisers (RIAs), broker/dealers (B/Ds), insurance companies, banks and individual investment professionals who are their employees or agents.

“The new proposed class exemption would permit investment advice fiduciaries to receive compensation as a result of providing fiduciary investment advice, including fiduciary investment advice to roll over a participant’s account in an employee benefit plan to an IRA and other similar types of rollover recommendations,” the fact sheet states. “The new proposed class exemption would also permit investment advice fiduciaries to enter into ‘principal transactions’ in which they could sell or purchase certain securities and other investments from their own inventories to or from plans and IRAs.”

The DOL says the proposed class exemption would require fiduciary investment advice to be provided in accordance with the following criteria: “A best interest standard, a reasonable compensation standard and a requirement to make no materially misleading statements about recommended investment transactions and other relevant matters.” Ostensibly, by complying with Reg BI, advisers or other investment professionals will satisfy all three of these criteria.

Products December 15, 2020

Benetic Introduces Provider Search Platform Tool

The new platform claims to reduce ‘months into minutes’ for RFIs and RFPs.

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Benetic’s new online platform allows advisers and consultants to evaluate recordkeepers and asset managers to generate proposals, requests for proposals (RFPs), requests for information (RFIs) and plan comparisons quickly.

Ray Conley, CEO of Benetic, says the platform allows advisers to gain efficiencies and streamline their workflow, taking over everything from RFPs and plan service negotiations to pricing conversations, changes in products and investments. Although the platform focuses on plans of $20 million and larger, it is valuable for all size plans, he tells PLANADVISER.

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The platform was built by Silicon Valley engineers with backgrounds at the Massachusetts Institute of Technology (MIT), Google and Facebook, who created what the company has named the Benetic Match intelligent search, which compares each provider’s differentiated value with the unique needs of each retirement plan.

Benetic can also help manage compliance by acting as an adviser’s digital assistant, the company notes, guiding them through the steps of the platform’s streamlined process for investment selection, recordkeeper evaluation, proposal generation, onboarding and client management. The whole process is meant to help advisers work with their clients, as the platform must be navigated by an adviser. However, Conley says, Benetic can have a relationship with a plan sponsor if the adviser chooses to send a proposal digitally to the plan sponsor. Benetic can then provide the adviser with analytics on how the plan sponsor engaged with the proposal.

At launch, the platform has seven recordkeepers embedded in the system, so advisers can get instant/real-time pricing. Conley says advisers can also get quotes from recordkeepers that are not within the system, but with a longer turnaround. The efficiency there is that the platform will manage that request for the adviser. Recordkeepers that decide to participate within the platform are able to determine how they want to display pricing, Conley notes.

Advisers have to engage with the recordkeeper in order to negotiate pricing. Over time, Conley says he expects to add other service providers, including those offering financial wellness solutions, pooled employer plans (PEPs) and managed accounts.

Conley also says he expects the number of recordkeepers participating in the system for real-time pricing will grow, with the “expectation that they’re all participating in the next 12 months,” he says, as there is no cost to them to participate. In the future, there may be services the company can offer recordkeepers for which it may charge, but there is nothing planned right now.

There’s also no cost to advisers to use the system. “I didn’t want to create any barrier to adoption,” Conley says. “The way we make money is people using the funds.”

Although the platform allows advisers to pick any fund, Benetic is partnering with investment managers to offer collective investment trusts (CITs) with market-leading pricing exclusive to Benetic (offered only where permitted under applicable law). When plan sponsors add those Benetic-exclusive CITs to their plan, Benetic receives an ongoing distribution fee.

The company is initially working to develop relationships with specialist advisory firms, and it has already been working with advisers at such firms, Conley says. After networking in the specialist space, he adds, the firm will work to pursue relationships with broker/dealers (B/Ds).

Benetic is built to provide benefits to both specialist retirement advisers and consultants, who can use the platform to help manage their current books of business and provide insight and differentiators related to 450 plan elements. At the same time, the interface can also be simplified for generalist advisers who are trying to figure out how to maximize proposals and get business in the door, Conley says.

More information can be found at https://benetic.com/. Interested advisers can register for the platform here or sign up for a demo here.

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