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Regulatory Notice

Department of Labor Prohibited Transaction Exemption 2020-02

Rule Background


On February 16, 2021, a new U.S. Department of Labor (“DOL”) “Prohibited Transaction Exemption” rule commonly referred to as the “Improving Investment Advice for Workers and Retirees” exemption went into effect.  The DOL describes this new exemption as follows:


Title I of the Employee Retirement Income Security Act of 1974, as amended (the Act) codified a prohibited transaction provision in title 29 of the U.S. Code (referred to in this document as Title I). Title II of the Act codified a parallel provision now found in the Internal Revenue Code of 1986, as amended (the Code). These prohibited transaction provisions of Title I and the Code generally prohibit fiduciaries with respect to “plans,” including workplace retirement plans (Plans) and individual retirement accounts and annuities (IRAs), from engaging in self-dealing and receiving compensation from third parties in connection with transactions involving the Plans and IRAs. The provisions also prohibit purchasing and selling investments with the Plans and IRAs when the fiduciaries are acting on behalf of their own accounts (principal transactions). This exemption allows investment advice fiduciaries to plans under both Title I and the Code to receive compensation, including as a result of advice to roll over assets from a Plan to an IRA, and to engage in principal transactions, that would otherwise violate the prohibited transaction provisions of Title I and the Code. The exemption applies to Securities and Exchange Commission- and state-registered investment advisers, broker-dealers, banks, insurance companies, and their employees, agents, and representatives that are investment advice fiduciaries. The exemption includes protective conditions designed to safeguard the interests of Plans, participants and beneficiaries, and IRA owners. The class exemption affects participants and beneficiaries of Plans, IRA owners, and fiduciaries with respect to such Plans and IRAs. This notice also sets forth the DOL's final interpretation of when advice to roll over Plan assets to an IRA will be considered fiduciary investment advice under Title I and the Code.


Of particular note, this new rule exemption generally applies to non-discretionary investment advisers per ERISA section 3(21)(A)(ii).  Such investment advisory firms are considered to be a Financial Institution when providing investment recommendations related to an IRA rollover from a qualified retirement plan, an IRA rollover from another IRA, a switch from a commission-based to a fee-based IRA, or other similar scenarios.


The exemption’s definition of a Financial Institution includes an entity such as RISE Consulting that is:


Registered as an investment adviser under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) or under the laws of the state in which the adviser maintains its principal office and place of business.


Impartial Conduct Standards


RISE will adhere to the Impartial Conduct Standards which are:


  • Give advice that is in the Retirement Investor's Best Interest;

  • Charge no more than reasonable compensation and seek to obtain best execution; and

  • Make no materially misleading statements about the recommended transaction and other relevant matters


In regard to advice, the exemption notes the following:


Advice is in a Retirement Investor's “Best Interest” if such advice reflects the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, based on the investment objectives, risk tolerance, financial circumstances, and needs of the Retirement Investor, and does not place the financial or other interests of the Investment Professional, Financial Institution or any Affiliate, Related Entity, or other party ahead of the interests of the Retirement Investor, or subordinate the Retirement Investor's interests to their own.


Furthermore, the exemption defines a number of key terms referenced above regarding Best Interest advice.


The definition of a Retirement Investor includes:

The beneficial owner of an IRA acting on behalf of the IRA or a fiduciary of… an IRA.


The definition of an Investment Professional means an individual who:

(1) Is a fiduciary of… an IRA by reason of the provision of investment advice described in ERISA section 3(21)(A)(ii) or Code section 4975(e)(3)(B), or both, and the applicable regulations, with respect to the assets of the… IRA involved in the recommended transaction;


(2) Is an employee, independent contractor, agent, or representative of a Financial Institution; and


(3) Satisfies the federal and state regulatory and licensing requirements of insurance, banking, and securities laws (including self-regulatory organizations) with respect to the covered transaction, as applicable, and is not disqualified or barred from making investment recommendations by any insurance, banking, or securities law or regulatory authority (including any self-regulatory organization).


The definition of an Affiliate means:

(1) Any person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with the Investment Professional or Financial Institution. (For this purpose, “control” would mean the power to exercise a controlling influence over the management or policies of a person other than an individual);


(2) Any officer, director, partner, employee, or relative (as defined in ERISA section 3(15)), of the Investment Professional or Financial Institution; and


(3) Any corporation or partnership of which the Investment Professional or Financial Institution is an officer, director, or partner.


The definition of a Related Entity is:

Any party that is not an Affiliate, but in which the Investment Professional or Financial Institution has an interest that may affect the exercise of its best judgment as a fiduciary.


Level Fees


RISE intends to only charge a Level Fee with respect to any such relevant investment recommendation scenarios as described above. A Level Fee is a fee or compensation that is provided based on a fixed percentage of the value of the assets or a set fee that does not vary with the particular investment recommended, rather than a commission or other transaction-based fee.

If an IRA rollover recommendation is executed, then due to the Level Fee arrangement any future IRA investment recommendations (such as a recommended asset allocation modification) should not result in an increase in compensation paid to RISE.




The following disclosures are required to be provided to the Retirement Investor recipient of a rollover recommendation prior to engaging in any transaction:


  • A written acknowledgment that RISE and its investment professionals are fiduciaries under Title I of ERISA and the Code, as applicable, with respect to any fiduciary investment advice provided by RISE and its investment professionals to the Retirement Investor.

    • RISE will typically satisfy this requirement through delivery of its Form ADV Part 2A or a separate written disclosure.

  • A written description of the services to be provided by RISE and its material conflicts of interest.

    • RISE will typically satisfy this requirement through delivery of its Form ADV Part 2A and advisory agreement.

  • Documentation of the specific reasons that any recommendation for an applicable roll over is in the Retirement Investor’s best interest.

    • RISE will typically satisfy this requirement via an IRA investment recommendation checklist.


Once disclosure has been provided, RISE will not be obligated to provide it again, except at the Retirement Investor’s request or if the information has materially changed.


Specific Documentation


RISE will only make an investment recommendation to a prospect or client related to an IRA rollover from qualified retirement plan, an IRA rollover from another IRA, or a switch from a commission-based to a fee-based IRA account if the recommendation is in the Best Interest of the Retirement Investor.


Accordingly, RISE has implemented a checklist to be completed for all such relevant investment recommendation scenarios. The purpose of the checklist is to document whether the investment advice provided is in the Best Interest of the Retirement Investor and meets the Impartial Conduct Standards.


Retention of Recommendation Documentation


RISE will retain all records related to documenting why the investment recommendation is in the Best Interest of the Retirement Investor. This documentation, including the relevant investment recommendation checklist along with all other relevant supporting documentation, will be retained either in the relevant client file, in a separate tool/software used for recommendations, or anywhere else that RISE determines to keep such documentation.


Annual Review


RISE is required to conduct an annual retrospective review that is reasonably designed to assist the firm with achieving compliance with the Impartial Conduct Standards and the policies and procedures regarding the Prohibited Transaction Exemption rule. Specifically, the methodology and results of this annual retrospective review must be documented in a written report that is provided to RISE’s CCO, who in turn will certify annually that:


  • The CCO has reviewed the report;

  • RISE has in place policies and procedures reasonably designed to achieve compliance with the Prohibited Transaction Exemption rule; and

  • RISE has in place a prudent process to (i) modify its policies and procedures as events dictate and (ii) test the effectiveness of these policies and procedures on a periodic basis.


This retrospective review, report and certification must be completed no later than six (6) months following the end of the period covered by the review.




The Prohibited Transaction Exemption rule also provides self-correction procedures, which state that a non-exempt prohibited transaction will not have occurred due to a violation of the rule provided that:

  • Either the violation did not result in investment losses to the Retirement Investor or the investment adviser made the Retirement Investor whole for any resulting losses;

  • The investment adviser corrects the violation and notifies the DOL via email at within thirty (30) days of the correction;

  • The correction occurs no later than ninety (90) days after the investment adviser learned of the violation or reasonably should have learned of the violation; and

  • The investment adviser notifies the persons responsible for conducting the retrospective review during the applicable review cycle, and the violation correction is specifically set forth in the written report of the retrospective review.



RISE is required to maintain records for six (6) years demonstrating compliance with the Prohibited Transaction Exemption rule.  This includes a requirement that the retrospective report, certification, and supporting data be retained for a period of six (6) years from compilation.


Written Acknowledgement of Fiduciary Status

When we provide investment advice to you regarding your retirement plan account or individual retirement account, we are fiduciaries within the meaning of Title I of the Employee Retirement Income Security Act and/or the Internal Revenue Code, as applicable, which are laws governing retirement accounts. The way we make money creates some conflicts with your interests, so we operate under a special rule that requires us to act in your best interest and not put our interest ahead of yours. Under this special rule’s provisions, we must:

  • Meet a professional standard of care when making investment recommendations (give prudent advice);

  • Never put our financial interests ahead of yours when making recommendations (give loyal advice);

  • Avoid misleading statements about conflicts of interest, fees, and investments;

  • Follow policies and procedures designed to ensure that we give advice that is in your best interest;

  • Charge no more than is reasonable for our services; and

  • Give you basic information about conflicts of interest.

Click HERE to download or print a PDF version of this notice.

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