The DOL’s fiduciary regulation was scheduled to become effective this September 23. The exemptions were scheduled to become partially effective this September 23 and fully effective September 23, 2025.

Two Federal district courts—one in the Eastern District of Texas and the other in the Northern District—have stayed the effective dates. That means that the new rules will not be effective until the courts have decided on the validity of the regulation and exemptions and, most likely, until the appeals are exhausted one way or the other.

As a result, the current fiduciary regulation, with its 5-part test, will continue in effect pending the final resolution of the lawsuits. In the same vein, the current PTEs 84-24 and 2020-02 will continue in effect until a final decision is reached on the validity of the amended PTEs.

My first article in this series, Fiduciary Rule 41, covered the court stays; the second article, Fiduciary Rule 42, discussed the similarities between SEC and SEC Staff guidance on rollover recommendations and the DOL’s conditions in PTE 2020-02. This article talks about the differences between the SEC Staff Bulletin (SEC.gov | Staff Bulletin: Standards of Conduct for Broker-Dealers and Investment Advisers Account Recommendations for Retail Investors) and the DOL’s conditions in PTE 2020-02 regarding rollover recommendations.

As I pointed out in my last post, while the SEC’s Regulation Best Interest (Reg BI) and its Commission Interpretation Regarding Standard of Conduct for Investment Advisers (RIA Interpretation) both cover rollover recommendations, the most detailed discussion is in the Staff Bulletin.

As you read this article, keep in mind that Reg BI only applies to retail investors (which includes participants in ERISA and qualified retirement plans and fiduciaries of very small plans), but does not apply to retirement plans generally. On the other hand, the SEC’s fiduciary standard for investment advisers applies to all advice given by investment advisers, including advice to retirement plans. The SEC Staff Bulletin, though, only covers recommendations to retail investors by broker-dealers and investment advisers. For rollover purposes, recommendations to participants are considered to be advice to retail investors.

With that background, let’s look at the differences between the DOL and SEC (and SEC staff) positions. To do this comparison, I will break the discussion into the four categories of conditions in PTE 2020-02. I have bolded the discussion where the differences are meaningful.

• • The Impartial Conduct Standards.
    The Impartial Conduct Standards include:
    • A best interest standard, consisting of prudence and loyalty. Reg BI, the RIA Interpretation and the SEC Staff Bulletin all include duties of prudence and loyalty. No difference there.
    • Limit to reasonable compensation. There isn’t an explicit limitation on compensation under the SEC and SEC Staff guidance. However, in the securities world compensation is typically a factor in the cost of the investment or services, and both the DOL and the SEC consider cost to be a factor in determining if a recommendation is in the best interest of an investor.
    • Best execution. No difference here.
    • Prohibition on materially misleading statements. No difference here either.
  • Disclosures.
    • Acknowledgement of fiduciary status under ERISA and the Code. There is not a comparable disclosure under the SEC and SEC Staff guidance for broker-dealers and investment advisers.
    • Description of services to be provided. Virtually the same requirement by the SEC as by the DOL.
    • Description of material conflicts. No difference
    • Disclosure of specific reasons why a rollover recommendation (including an IRA transfer recommendation) is in the best interest of the investor. Neither broker-dealers nor investment advisers have a similar disclosure obligation under SEC guidance. However, the SEC Staff Bulletin says: “In the staff’s view, when making a rollover recommendation, it may be difficult for a firm to assess periodically the adequacy and effectiveness of its policies and procedures or to demonstrate compliance with its obligations to retail investors without documenting the basis for the recommendation.” As a result, it is advisable to document the reasons why the rollover recommendation is made, but there is not a need to disclose the reasons.
  • Policies and Procedures.
    • To ensure that the firm and the advisor comply with the Impartial Conduct Standards. Other than the differences described above under the Impartial Conduct Standards, the SEC would require similar policies and procedures.
    • To mitigate conflicts of interest. Reg BI requires that the conflicts of the advisors at broker-dealers be mitigated, but the DOL PTE requires that the conflicts of both the firm and its advisors be mitigated. The RIA Interpretation does not require that conflicts be mitigated; however, the SEC has said that the fiduciary standard and the duty to disclose conflicts are separate duties that must be separately satisfied. As a result, in at least some cases, the disclosure of a conflict would not protect an investment adviser if the recommendation did not satisfy the fiduciary standard (g., there were reasonably available options at a lower cost).
    • To document and disclose why rollover recommendations are in the best interest of the investor. As explained under Disclosures, it would be advisable to document the reasons, but the SEC does not require disclosure.
  • Retrospective Review.
    PTE 2020-02 requires that firms do an annual retrospective review of the effectiveness of their policies and procedures for recommendations subject to the PTE and reduce the findings to a report signed by a senior executive officer.
    While broker-dealers and investment advisers are not required to do annual reviews that focus on recommendations to retirement investors (e.g., plan participants and IRA owners), they are required to perform annual reviews of the effectiveness of their policies and procedures that are documented in certified reports. For example, investment advisers are required to perform reviews under Rule 206 of the Investment Advisers Act. Similarly, broker-dealers are required to perform and report annual reviews under FINRA rules 3110, 3120, and 3130.

Concluding Thoughts

As this article and the last one explain, the SEC’s guidance in Reg BI and the RIA Interpretation, as augmented by the SEC Staff Bulletin, are closely aligned with the conditions in the DOL’s PTE 2020-02 for recommendations to roll over funds from retirement plans and to transfer IRAs. While the stays of the DOL’s new fiduciary regulation and exemptions mean that one-time rollover recommendations may not be fiduciary advice for purposes of ERISA and the Internal Revenue Code, the stays don’t mean that, for broker-dealers and investment advisers, rollover recommendations are not regulated at all. In fact, they are…and in ways that are very similar to the DOL’s.

Interestingly, the scope of the SEC rules is even broader than the DOL’s, because the SEC rules will apply to rollover recommendations from plans that are not subject to the DOL’s regulation and exemptions, for example, government plans and most church plans.