6/20/2022 - 64 minutes
Episode Summary
On today’s episode the one and only Fred Reish joins me to discuss emerging regulatory trends affecting advisory firms and advisors. Fun fact - Fred is the first repeat guest on the show (see Episode #4).
During our conversation, we focus much of our discussion on the new fiduciary advice exemption, PTE 2020-02 which became effective on February 16, 2021. The new prohibited transaction rules cast a wide net, impacting both qualified plans and IRAs and the compliance requirements are significant. Fred shares his concerns about the confusion he is seeing with regard to the effective compliance dates, the new and expanded requirements that both advisory firms and advisors must adhere here to, how the new rules create conflicts of interest when making rollover recommendations and what must be done to mitigate these issues, and how different types of firms are approaching education vs. specific advice on the different rollover options as well as how they are dealing with the new disclosure requirements.
Towards the end of the show, we also discuss the recent (and controversial) sub-regulatory guidance by the DOL on cryptocurrencies, why this guidance was so much different and explicit than the norm, practical considerations for firms and advisors when advising on crypto for plan sponsors, and how the guidance on crypto and private equity are closely aligned.
What You'll Learn
- Key issues associated with PTE 2020-02
- The need for policies and procedures to mitigate conflicts of interests of the firm and the advisor
- How the rollover recommendation creates a new conflict of interest that firms need to mitigate
- The 3 important compliance dates with PTE 2020-02 and Fred’s concern that firm’s are not ready for these dates
- The expanded fiduciary definition on rollovers
- The 4 sets of conditions associated with the PTE
- The fork in the road between educating participants vs. providing advice on the 4 rollover options
- How firms are incorporating the new disclosures
- Why the DOL’s position on cryptocurrencies was different from the norm and so controversial
- Some of the practical issues that advisors and plan committees need to grapple with if they choose to add crypto
- How the crypto and private equity guidance are closely aligned and why demonstrating appropriate expertise will be paramount
Links to Resources
- Fred Reish: LinkedIn | Website
- PTE 2020-02
- PTE 2020-02 FAQ
Ideas Worth Sharing
- “If you’re thinking this is a retirement plan issue, you’re wrong. This is an IRA issue.” - Fred Reish
- “IRAs are now being put out on the main street from a regulatory and enforcement perspective and I think a huge number of people are overlooking that.” - Fred Reish
- “The last part that has unfortunately confused a lot of people about what the real effective date is comes into effect on July 1 which is beginning July 1 anytime you recommend the transfer of an IRA or rollover from a plan to an IRA you have to provide the participant or the IRA owner with the specific reasons in writing why that’s in their best interest and if you don’t do that it’s a prohibited transaction and your compensation is strictly prohibited.” - Fred Reish
- “In the first paragraph of that DOL guidance it says fiduciaries should exercise extreme caution in selecting cryptocurrencies for their plans and as a general rule of thumb they do not use adjectives and adverbs in governmental guidance.” - Fred Reish
- “It’s not fiduciary breaches that cause litigation, it's big losses and then the plaintiff’s attorneys going looking for the fiduciary breach.” - Fred Reish
- “To the extent that put a highly volatile investment in a plan, just as a practical matter you increase the probability of fiduciary breach litigation down the line.” - Fred Reish