Q&A: DOL’s Fiduciary and Retrospective Review Expectations

InvestorCOM’s webinars provide an excellent forum in which to learn about the latest regulatory requirements from industry experts.

Our November 1 webinar, “DOL’s Fiduciary and Retrospective Review Expectations”, featured industry experts from DFPG Investments, Katten, Faegre Drinker and Oyster Consulting. Unfortunately, we ran out of time before the speakers could address every question from the audience.

We have since reviewed the remaining questions from this webinar and have published the answers below. We hope you find this content helpful.

How should a Chief Compliance Officer prove that their review was adequate based on their size and business?

Record-keeping will be a key part of the retrospective review requirements. Specifically, the retention requirement is six years which does not conform to the retention requirements for either broker-dealers or investment advisers and is longer than both. The retrospective review and supporting documents must be made available to the DOL within 10 business days of a request.

What do you think the adoption rate of some methodology and compliance has been?

In our discussions, firms that are most successful with adoption have simplified the requirements by making a process/methodology mandatory when opening qualified accounts and for any inbound transfers into qualified accounts.

Please comment on the expected scope and level of detail of the retrospective review, as well as what items must be reported to the Department of Labor (DOL) (e.g., individual instances of missed disclosure, vs. more systemic issues vs. a failure to provide a client-specific rollover analysis).

The process must be reasonably designed to assist in detecting and preventing violations of and achieving compliance with, the impartial conduct standards and the policies and procedures governing compliance with the PTE. The methodology and results of the retrospective review must be detailed in a written report provided to the chief executive officer (CEO) and chief compliance officers (CCO), or the equivalent. The CEO must certify:

  • They have reviewed the report of the retrospective review.
  • The firm has in place policies and procedures prudently designed to achieve compliance with the conditions of the proposed exemption.
  • The firm has a prudent process in place to modify such policies and procedures as business, regulatory and legislative changes, and events dictate, and to test the effectiveness of such policies and procedures on a periodic basis, the timing and extent of which are reasonably designed to ensure continuing compliance with the conditions of the exemption.

The review, report, and certification would have to be completed no later than six months following the end of the period covered by the review.

Please compare and contrast managed account/plan requirements versus annuity requirements. For example, would the surrender and transfer of an Annuity IRA policy to a managed IRA account (AUM) fall under the DOL’s PTE 2020-02 requirements?

We have observed diverse practices across our firm’s clients. One of the more prudent practices we’ve observed has focused on the need to comply with the exemption requirement anytime your advisor / financial professional will have an increase in compensation based on the recommendation.

Does anything need to be filed with the DOL regarding the retrospective review?  Or is the review on the “honor system”?

Based on information obtained from researching the Department’s FAQ there is no filing requirement. However, firms will need to be prepared to make their retrospective review report available within 10 business days of request by the Department.

For a firm that does a pre-transaction approval of all rollover recommendations and IRA to IRA transfers, what are some red flags and where practically should we sample?

Assuming your pre-transaction approval will prevent or catch recommendations that you deem to violate your best interest policies, in our opinion, some areas to consider are pattern-based behavior (i.e., advisors that seem to always answer questions the same way), overuse of industry benchmark instead of actual plan information, and confirmation that all required activity has a supporting recommendation (i.e., testing accounts opened vs. recommendations made).

Regarding InvestorCOM’s Compliance Dashboard and RolloverAnalyzer – Can this be integrated with SalesForce?

Yes. InvestorCOM RolloverAnalyzer and its Compliance Dashboard feature are very flexible and can be integrated with many applications, such as CRMs.

When will InvestorCOM’s Compliance Dashboard feature be live? And how can we activate it?

The Compliance Dashboard is expected to be available in December 2022 for our enterprise clients.

The self-reporting part of the rule says we need to (1) correct and (2) make the client whole for any investment losses. I can’t find any clarity on what qualifies as correcting or what is considered an investment loss.

At this time, there is no precedence around how firms can correct and make a client whole in rollover recommendations. This is something to watch for as examinations ramp up over the coming months.

Have you heard of any firms that have received DOL letters or subpoenas (or anything in between) regarding PTE 20-02 yet?

At this time, we have not heard of any DOL letters or subpoenas from our respective clients.

When using a system like that offered by Investorcom. Are the “canned” reasons that the system may generate as to the attributes of the recommendation good enough as the basis for best interest or do they need to be supplemented with notes?

Especially in a rollover scenario for Best Interest and DOL.

Our solution is configurable, so the client provides their own “canned” attributes and reasons and standard language within the client-facing recommendation disclosure, thereby insuring that the data collected and reported to the client is in line with their policies and procedures.