More than 50% of broker-dealer and registered investment advisory firms are still in the earliest days of planning to meet the U.S. Department of Labor’s far-reaching fiduciary rule, despite the looming December 20 deadline, according to an informal poll from InvestorCOM.
December 20 is the date the DOL will begin to enforce the complex rule (called the prohibited transaction exemption, or PTE 2020-02), which governs how registered reps and advisors analyze and disclose rollover recommendations for investors in retirement plans and IRAs.
The poll was taken at a compliance roundtable hosted by InvestorCOM and is available in the compliance technology firm’s new report.
Some 50% of compliance executives at the roundtable admitted “we are just getting started” on meeting PTE 2020-02 requirements. The other 50% said “we are almost there.”
“Based on what we've heard from customers, and the depth of the requirements, we're not surprised that 50% of firms [are] just getting started,” said Parham Nasseri, InvestorCOM’s vice president of regulatory strategy, in an interview with Financial Advisor. Firms concerned about the deadline, he said, could look to third-party software for help rather than trying to do it manually “to accelerate their compliance plans.”
“Across the U.S., firms are at different states of readiness for compliance by the December 20, 2021, deadline. Some firms have been planning for compliance for some time, while others have only recently become aware of the impact that this rule will have on their processes,” the firm said.
The rule says financial professionals must analyze each investor’s current retirement plan or IRA, openly consider alternative investments and demonstrate that their recommendations are in investors’ best interest. Firms and their reps or advisors also need to make sure their recommendations are relatively free of conflicts of interest. Each firm’s new rollover system also needs to be rolled out to employees in the field, who in turn need to be trained to use it.
Evolving fiduciary exam practices suggest “examiners want to see documented, repeatable processes for assessing reasonable alternatives when making recommendations. Firms cannot treat a conflict review as a onetime project,” InvestorCOM said.
“Instead, they need to have a mechanism for updating the review when clearing contracts change, the tech stack is altered, new products are launched, or rules are updated. Also, firms need to review and update disclosure and mitigation of conflicts over time. Firms should think along similar lines when creating compliance processes for the Fiduciary Rule 3.0.” (This is the third go-round for the Department of Labor in its attempt to create fiduciary requirements.)
How frequently are financial professionals making rollover recommendations? Some 50% make rollover recommendations once a week, 13% make them daily, 25% make them monthly and 13% make them annually,” the poll found.