DOL issues guidance on fiduciary investment advice PTE 

April 16, 2021

The Department of Labor (DOL) has published guidance on the recent prohibited transaction exemption (PTE 2020-02) for fiduciaries providing investment advice to retirement plan participants. The PTE allows investment advice fiduciaries to receive certain compensation for advice — including advice to roll over ERISA-plan assets — in transactions that might present conflicts of interest for the fiduciaries. The new guidance consists of two resource webpages: one for advisors and one for investors.

Guidance for advisors

The new webpage for advisors provides FAQs that assemble the PTE and its preamble into a more concise and readily accessible format. The questions cover issues such as how advisors should comply with the PTE’s impartial conduct standards and its disclosure and documentation requirements. The webpage provides little new guidance on the PTE, with one exception: FAQ 17 explains the special considerations that apply to financial institutions using payout grids to determine compensation for their investment professionals.

The FAQs also address DOL’s future guidance plans. The agency is reviewing “issues of fact, law, and policy” related to the PTE and its regulation of fiduciary investment advice on a broader scale. DOL anticipates taking further action that may include amending PTE 2020-02, the fiduciary investment advice regulation and other class exemptions available to investment advice fiduciaries. Nonetheless, DOL said it didn’t want to delay PTE 2020-02’s “fundamental investor protections” while considering additional actions, so the exemption’s core components seem likely to remain largely intact.

Guidance for investors

The other new webpage is a resource to help retirement investors choose the right investment advisor. The webpage includes a set of questions that DOL recommends investors ask a potential investment advice provider and a separate list of FAQs about the new PTE from the investor’s perspective. The FAQs explain why DOL adopted the PTE and provides guidance on practical issues, for example, explaining that the PTE doesn’t make an investment advisor responsible for investment losses in the individual’s account or require the advisor to search for the best investments for the individual.

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