The New Rollover Rule Is Here: Are You Complying?

Retrospective review. A requirement of the rule is the pending retrospective review requirement. To comply, a firm is required to catalog compliance policies and procedures throughout the year and conduct an annual review.

The review extends past rollover recommendations into all policies and procedures regarding the firm’s fiduciary standard of conduct, including the firm’s mutual fund share class selection policy, fiduciary duty policy, portfolio management policy, retirement accounts and ERISA matters policy, portfolio valuation/reconciliation policy, advisory agreements and fees policy, and wrap fee/asset-based pricing policy, among others.

The written report is required to be reviewed by a senior executive officer of the firm. This retrospective review, report and certification must be completed no later than six months after the end of the period covered by the review. The initial retrospective review must be completed by July 1, 2023.

How can I obtain information about an individual’s existing plan when conducting the best interest analysis? What if a client cannot or will not provide information? The Department of Labor Employee Benefits Security Administration provided guidance on this and other issues in its April 2021 FAQs.

To satisfy the documentation requirement for rollovers from an employee benefit plan to an IRA, investment professionals and financial institutions should make diligent and prudent efforts to obtain information about the existing employee benefit plan and the participant’s interests in it.

In general, such information should be readily available as the result of Labor Department regulations mandating disclosure of plan-related information to the plan’s participants. If the retirement investor won’t provide the information, even after a full explanation of its significance, and the information is not otherwise readily available, the financial institution and investment professional should make a reasonable estimation of expenses, asset values, risk, and returns based on publicly available information.

Am I required to share the outcome of a rollover analysis with the client? Yes. If you provide a recommendation, you are required to provide a written disclosure to the client of the specific reasons that the recommendation to roll over assets is in their best interest.

Thomas D. Giachetti is chairman of the Investment Management and Securities Practice Group of Stark & Stark. He can be reached at [email protected].

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