November 20, 2023

Investment Advice Fiduciary and Prohibited Transaction Exemptions Proposal


Department of Labor Proposal: Investment Advice Fiduciary and Prohibited Transaction Exemptions 

As expected, the Department of Labor (DOL) released the Retirement Security Rule: Definition of an Investment Advice Fiduciary proposal for its 60-day comment period to the Register, along with amendments to the various Prohibited Transaction Exemption (PTE) regulations. The intent is to expand the definition of whom qualifies as an “Investment Advice Fiduciary” under ERISA, and clarify the standards set forth in PTE regulation. Per the rule proposal’s definition, a Provider is someone whom:
  • Provides investment advice or makes an investment recommendation to a “retirement investor” (i.e., a plan, plan fiduciary, plan participant or beneficiary, individual retirement account (IRA), IRA owner or beneficiary, or IRA fiduciary);
  • Receives a “fee or other compensation, direct or indirect” for the advice or recommendation; and
  • Makes the recommendation in one of the following contexts of a professional relationship where the individual investor would reasonably expect to receive sound investment recommendations that are in their best interest:The provider has discretion over the retirement investor’s investment decisions;
    • The provider makes investment recommendations to investors on a regular basis as part of his, her, or its business, and the recommendation is provided under circumstances that would indicate that the recommendation is based on the retirement investor’s particular needs or circumstances, and 
    • the advice may be relied upon by the retirement investor as a basis for making investment decisions that are in the retirement investor’s best interest; or
  • When making the investment recommendation, the provider acknowledges or represents that they are acting as a fiduciary.
The reason for expansion? The rule doesn’t cover IRAs. The current five-part test to determine if you are an Investment Advice Fiduciary is a Provider whom:
  • Renders 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 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. 
With the expansion of the “on a regular basis” item, to cover a Provider’s day-to-day business would effectively capture one-time advice recommendations; i.e whether a retirement investor should roll over their employer-sponsored 401(k) into an IRA, an annuity, or keep his or her assets in the plan. In conjunction with these changes, the DOL will be maintaining core components of the PTE 2020-02. However, this amendment will require additional disclosures to investors, which if adopted may require amendments to Advisor’s client disclosures and policies and procedures. In addition, the proposal includes enhanced language regarding the exemption’s conditions, such as the fiduciary acknowledgment requirement and a new requirement to provide a written statement of the best interest standard of care owed by the investment professional to the investor. PTE 2020-02 would furthermore be expanded to cover certain transactions involving pooled employer plans (PEP) and transactions involving “pure” robo-advice providers. AdvisorAssist will continue to monitor this proposal through its comment period in January and will communicate out further action steps as necessary. No action is needed at this time. Please contact us with any questions regarding this proposal, or your current PTE 2020-02 processes.


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