PTE 2020-02: The Case for Deploying Compliance Technology

The Department of Labor’s (DOL) Prohibited Transaction Exemption 2020-02 (PTE 2020-02) has been in effect since February 2021, allowing financial professionals to receive compensation for rollover recommendations providing that their advice meets a set of best interest requirements. The DOL’s grace period for enforcing specific documentation and disclosure requirements will end on June 30, 2022.

Many firms appear to be making progress toward meeting the PTE 2020-02 compliance deadline. During a recent InvestorCOM webinar on Reg BI and PTE 2020-02 Compliance Priorities, a poll of 100 firms indicated that 48% are on track to meet the requirements while 15% are just getting started. In the same poll, 75% of respondents stated that they would be deploying new compliance technology to meet their rollover requirements.

PTE 2020-02 and Compliant Rollover Recommendations

The DOL’s New Fiduciary Advice Exemption FAQ clarifies that firms and financial professionals relying on the exemption must:

  • Acknowledge their fiduciary status in writing
  • Disclose their services and material conflicts of interest
  • Adhere to the Impartial Conduct Standards
  • Adopt policies and procedures prudently designed to ensure compliance with the Impartial Conduct Standards
  • Document and disclose the specific reasons that any rollover recommendations are in the retirement investor’s best interest
  • Conduct an annual retrospective compliance review

Although complying with the PTE 2020‑02 requirements will be resource-intensive, the costs of non-compliance could be even higher, given the potential for lengthy regulatory investigations, penalties and sanctions.

What’s Involved in Making Rollover Recommendations: A Manual Approach

Firms that elect to take a manual approach to meeting compliance requirements for PTE 2020‑02 will find themselves on a path that is labor-intensive and cumbersome for financial professionals and at risk of human error.

  1. Best Interest Recommendations – Much has been written about the additional lift imposed by PTE 2020-02’s compliance requirements. In summary, a financial professional must assess how the overall services, client circumstances and costs of the rollover compare between the employer-sponsored plan and the proposed individual retirement account. The assessment of plan costs alone is time- and labor-intensive. As outlined in the DOL’s FAQs, a financial professional can assess costs by referring to the client’s 404(a)(5) statements. If statements are unavailable, she can look up the plan costs in the Form 5500 database and/or rely on publicly available sources of data. Finally, the best interest rollover analysis that captures this balanced scorecard approach will need to be documented and disclosed to the client.
  2. Supervisory and Annual Retrospective Reviews – Compliance staff and supervisors will need to review the rollover analysis, particularly when it results in a recommendation to complete the rollover. Reviews by supervisors and compliance staff could be particularly time-consuming when individual financial professionals within the same firm complete and document their analyses differently. Annual retrospective reviews are required under PTE 2020-02, which again could be time-consuming if analyses differ between financial professionals or if they must be gathered manually from various sources.
  3. Regulatory Examinations and Enforcement Actions – Firms must be able to respond promptly and thoroughly to examiners during regulatory examinations. Examiners will review firm policies and procedures, systems the firm has implemented, and a broad sampling of rollover recommendations. Client complaints or examination deficiencies could result in a regulatory investigation, which would add significant costs for firms. Finally, enforcement action could add significant staffing costs and legal costs for internal and/or external counsel, in addition to the costs of potential regulatory sanctions, penalties and fines.


The Value of Using Compliance Technology to Comply with PTE 2020-02

Firms of all sizes are relying on purpose-built compliance technology to efficiently meet the PTE 2020-02 requirements. Automating the rollover analysis and recommendation process by deploying compliance technology also has the added benefit of significant cost savings. For example, modern compliance technology can be used to incorporate all the required components of analysis, recommendation, documentation and disclosure into a single workflow. Specifically, financial professionals will have access to standardized data fields, up-to-date Form 5500 plan information and benchmarking data, as well as firm-approved compliant disclosures. Meanwhile, compliance teams will gain comprehensive supervisory oversight of the firm’s rollover activity to ensure adherence to requirements.

For example, a mid-sized firm with 500 registered representatives might complete 3,000 rollover recommendations per year. Let’s consider the potential cost savings when this firm uses rollover technology. For this analysis, we’ll assume financial professionals, supervisors and compliance staff earn an average of $100/hour. Amounts provided for time saved are conservative estimates.

Cost Savings from Using Rollover Technology

Cost Savings
Rollover Analysis
A financial professional can save about 3 hours in aggregating cost data and analyzing, documenting and disclosing the recommendation. [3,000 rollovers * 3 hours * $100/hour]  


Supervisory and Retrospective Reviews
A supervisor or compliance officer can save at least an hour in gathering and reviewing rollover analyses. [3,000 rollovers * 1 hour * $100/hour]  


Regulatory Examinations and Enforcement Actions
Compliance professionals can save 300+ hours in retrieving rollover records from a central source during examinations and litigation matters. This excludes the time spent by leadership and counsel collecting data to avoid reputational harm resulting from possible negative outcomes. [300 hours * $100/hours]  


Cost Savings Per Year Using Compliance Technology   $1,230,000


End-to-end Workflow to Meet PTE 2020-02

Deploying technology that incorporates all steps into a single, end-to-end workflow to meet the PTE 2020‑02 requirements is efficient. RolloverAnalyzer is a drop-in, cloud-based application for financial professionals to make best interest rollover recommendations and easily analyze, look-up costs, document and disclose their analyses to clients. RolloverAnalyzer is intuitive to use and the only technology available today that digitizes and automates a firm’s rollover processes via a single workflow. Using this application, financial professionals will find it easier to meet their Reg BI and PTE 2020-02 regulatory obligations, and compliance teams will find it easier to administer a consistent, firm-wide process for rollover recommendations, disclosure and documentation.

With RolloverAnalyzer, financial professionals can intuitively and quickly:

  1. Analyze a rollover by comparing the rollover recommendation against cost, service and fit criteria
  2. Access plan data via automated integration to Form 5500 and benchmark data, enabling financial professionals to assess and compare plan costs
  3. Document and disclose the recommendation to clients and maintain a record of it for compliance review

Learn more about RolloverAnalyzer to get ready for the PTE 2020‑02 deadline.

To find out how RolloverAnalyzer can help your firm. Sign up for a demo.



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