Preparing for the Retirement Security Rule

Employee training and supervision, as well as internal policies and procedures, will be essential for complying with the Department of Labor’s Retirement Security Rule, parts of which come into effect in September, according to industry experts speaking Tuesday on a webinar.

The Retirement Security Rule, finalized in April, “increases the activities that will be considered fiduciary activities,” says William Nelson, an associate general counsel at the Investment Adviser Association, speaking at a webinar hosted by InvestorCOM. 

The rule covers recommendations where an adviser presents themselves to a retirement investor as offering them individualized advice that can be relied on to advance their best interests, even if this recommendation is done on a one-time basis.

Nelson said that the DOL was concerned about “marketing, sales pitches,” and wanted to be sure those presentations “matched investor perceptions.”

Employee Training

The new rule also amends PTE 2020-02, which describes the requirements advisers must follow in order to be compensated for fiduciary advice to a plan. Nelson said that “training is going to be a huge part of it,” to be sure that advisory professionals continue to comply with the rule going forward.

The PTE, in its own words, requires advisers to manage their conflicts with policies that “mitigate Conflicts of Interest to the extent that a reasonable person reviewing the policies and procedures and incentive practices as a whole would conclude that they do not create an incentive for a Financial Institution or Investment Professional to place their interests, or those of any Affiliate or Related Entity, ahead of the interests of the Retirement Investor.”

Ed Wegener, managing director and head of governance, risk and compliance with Oyster Consulting, warned advisers not to take advantage of the distinction between education and recommendation outlined in the rule. He emphasized that employee training should really make this clear “so they don’t inadvertently cross the line.” He said that he suspects DOL will be “keeping a look out for that.”

Another change in the PTE is that an adviser can lose access to the exemption if a foreign affiliate is convicted of a crime. Nelson explained that advisers “will really want to look at their affiliates,” to mitigate this risk because “you may not be allowed to rely on the PTE 2020-02 anymore.”

Unsolicited Rollovers

Nelson said that many members ask about “unsolicited rollovers,” or a rollover where the adviser is approached by a client and does not make specific recommendations to them. He said that “if you’re going to do it, get that documentation,” that the client initiated through the rollover.

Though the rule requires an actual recommendation to be made, the new PTE 2020-02 says that recommending a destination for a rollover would count, and it can be difficult in practice to execute a rollover without also recommending a destination at some point, though conceivably a client could recommend that too, says Jason Roberts, founder and CEO of the Pension Resource Institute, in commentary separate from who did not speak on the webinar.

Parts, though not all of the Retirement Security Rule will go into effect on September 23.