August 31, 2022

Fred Reish Discusses DOL Rollover Rule Compliance With ThinkAdvisor

In “Small RIAs Likely Breaking New DOL Rollover Rule Without Knowing It: ERISA Lawyer,” ThinkAdvisor shared key takeaways from benefits and executive compensation partner Fred Reish on small registered investment adviser (RIA) firms’ compliance with rollover rules put in place by the Department of Labor’s (DOL) new fiduciary prohibited transaction exemption (PTE) 2020-02.

“The covered advice includes recommendations to plan participants to roll their plan accounts to IRAs and recommendations to IRA owners to transfer their accounts to the adviser’s firm,” said Reish, who told ThinkAdvisor that many small RIA firms “are not aware of PTE 2020-02 or its requirements. That is partially the case because those firms don’t regularly do retirement plan work and are unaware that the DOL regulates them.”

Unlike most broker-dealers and large investment advisory firms, Reish explained, these small firms “do not receive information about DOL guidance and do not attend conferences with DOL programs. In addition, they usually do not have an in-house attorney or a dedicated compliance officer.”

Advisers at these small RIA firms “do recommend plan-to-IRA rollovers and IRA-to-IRA transfers,” Reish continued. “I am concerned that there may be a large number of noncompliant recommendations to roll over or to transfer IRAs. This is not because of an intention to defy or violate the rules, but instead is due to a lack of awareness of DOL-issued rules.”

Reish noted that noncompliant recommendations “result in prohibited transactions, which can result in loss of compensation, interest and penalties.” He added that the DOL and investment advisory industry “need to consider how to better educate small RIA firms and need to have a way to bring those firms into compliance without penalties.”

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