PTE 2020-02: How to Get Ahead of the PTE’s Retrospective Review Process
InvestorCOM recently chatted with Tom Selman, founder of Scopus Financial Group for his insights on how to get ahead of the PTE 2020-02 annual retrospective review process.
Parham Nasseri [PN]: Tom, there’s been a notion that now there needs to be this retrospective review process. Just practically, or maybe even strategically, what does this mean? Is it the similar audit process that firms have to conduct? How can firms get ahead of this?
Tom Selman [TS]: Well, the PTE requires an annual retrospective review that’s reasonably designed to assist in detecting and preventing violations of the impartial conduct in other standards as well as the firms on policies and procedures. It’s a written report that must be annually done by a senior executive. It has to provide both the methodology that was used in the retrospective review, as well as the results. The senior executive has to certify that the policies and procedures are prudently designed. The use of prudence is a classic DOL and ERISA term. There has to be sampling and transactions to help inform the report.
For firms, particularly broker-dealers, this sounds an awful lot like the 3120 and 3130 requirements that FINRA imposed of testing your procedures and then having a CCO typically sign off on the testing and the procedures,… It’s very similar to that process but I think it’s more extensive. I read it to require much more involvement by the senior executive first-hand. Most importantly, the DOL said that compliance with 3120 and 3130 procedures would not constitute any kind of safe harbor for compliance with the retrospective review requirements. I think the FINRA requirements for a broker-dealer would inform how the retrospective review goes, but you have to consider the additional requirements expected by the DOL.
PN: Our technology enables firms to capture that data to conduct any form of analysis. Data is the starting point for how firms decide to interpret those requirements. Your insights to going back to the 3120 and 3130 is really powerful and helpful.
TS: Let me mention, the earlier slide showed a huge percentage, if not most (firms), have a manual process for reasonably available alternatives and some of the other key aspects of PTE and Reg BI.
I think, particularly when you get into the retrospective review process and the sampling requirement, I just don’t know how you do it if you’re not relying on technology. I think it’s impractical. You don’t want to do anything that discourages as complete of a review as possible. It’s not going to be any kind of an excuse to FINRA, the SEC or DOL, that you just didn’t have the technology and it was too cumbersome to do the retrospective review.
If you enjoyed this article, you can listen to the full discussion online – Watch the replay of the webinar, PTE 2020-02: Regulatory Compliance, Technology and Growth Opportunities