iralogix

DOL Finalizes New Fiduciary Rule

Financial professionals working with retirement savers will be subject to a new rule that goes into effect on September 23, 2024. The Department of Labor (DOL) has updated the rule under ERISA and the Internal Revenue Code that defines when a person is a fiduciary for providing nondiscretionary advice to a retirement plan sponsor or an individual investor in a workplace retirement plan, IRA, or HSA. Under the new rules, more brokers, advisors, and insurance agents will be held to a fiduciary standard when providing personalized recommendations to retirement investors, including one-time rollover advice.

The DOL updated its 1975 rule to reflect today’s complex retirement savings market and to better protect retirement investors by requiring trusted advice providers to follow high standards of care and loyalty when making investment recommendations. The updated rule, according to the DOL, fills important gaps in its and other regulatory agencies’ rules to ensure that financial professionals adhere to more uniform conduct standards and mitigate their conflicts of interest whether they make recommendations to retirement investors on securities or non-securities investments, or recommendations to move retirement savings to another plan or IRA. 

New Definition of Investment Advice Fiduciary

The new rule replaces the 1975 five-part test for determining when nondiscretionary investment recommendations trigger fiduciary status. The new test focuses on whether a financial professional has effectively held themselves out as occupying a position of trust and confidence with respect to the retirement investor. Three criteria must be met:

  1. Directly or indirectly (e.g., through or together with any affiliate) make professional investment recommendations regularly, as a part of their business
  2. The circumstances reasonably indicate that a recommendation
    • is based on a review of the retirement investor’s particular needs or individual circumstances,
    • reflects the application of professional or expert judgment, and
    • may be relied upon by the retirement investor as intended to advance the retirement investor’s best interest
  3. Receive a fee or other direct or indirect compensation in connection with the recommendation

A financial professional is also an investment advice fiduciary if they represent or acknowledge that they are acting as an ERISA fiduciary, and receive a fee or other compensation, with respect to the recommendation. 

Changes in the New Rule

  • Does not include a private right of action for IRA investors, or other contract or warranty requirements that were part of the 2016 rule that was vacated by Fifth Circuit in 2018
  • Sole remedies for non-compliance are those set forth in ERISA and the Code, which include only the imposition of excise taxes in the context of advice to IRAs
  • Is broader than the 1975 rule but more narrow than the 2016 rule or the 2023 proposal as to the recommendations that constitute fiduciary advice and makes clear that the new fiduciary status test is objective
  • Confirms that sales executions or sales recommendations that do not satisfy the objective test are not fiduciary advice
  • States that investment information or education is not fiduciary advice
  • Explains that an asset manager does not render fiduciary advice by making recommendations to a financial professional or firm that, in turn, will render advice to retirement investors in a fiduciary capacity

Investment Advice Fiduciary Needs PTE

Financial professionals who meet the DOL’s definition of investment fiduciary must satisfy the conditions of a prohibited transaction exemption (PTE) to mitigate conflicts of interests and receive payment that would otherwise be prohibited because the payment is directly affected by the recommendation. The DOL amended several of its existing PTEs to ensure all retirement investors receive the same standard of care, regardless of the product or service they receive. As a result, the only exemptions available for receiving conflicted compensation is PTE 2020-02 for advice with respect to the wide universe of investments recommended to retirement investors, and PTE 84-24 for recommendations by independent insurance agents.

The DOL states that the compliance obligations in PTE 2020-02, even with amendments, are generally consistent with those set forth in the SEC’s Regulation Best Interest (Reg. BI) and Interpretation of Conduct for Investment Advisers for advice to retail customers on securities. Therefore, broker-dealers and investment advisers that have already adopted compliance with Reg. BI or the fiduciary obligations under the Advisers Act should be able to adapt easily to the amended PTE.

Changes to PTEs

Finalized changes to PTE 2020-02 include coverage of pure robo-advice, pooled plan providers, and non-bank custodians for HSAs, clarifications on disqualifications from using the PTE, and the requirement to self-report and pay excise taxes to the IRS for non-exempt PTs. Another change from the proposal narrows when rollover disclosures are required. As amended, PTE 2020-02 only requires rollover disclosures for rollover recommendations from an ERISA Title I retirement plan and recommendations as to the post-rollover investment of assets currently held in a Title I plan. Rollover disclosures will no longer be required for advice to roll over from one IRA to another IRA or to change account type. The DOL notes, however, that advisors still have fiduciary care and loyalty obligations to make prudent efforts to obtain information about fees and investment options, and that demonstrating compliance will likely be difficult without documenting the basis for such recommendations.

PTE 84-24, as amended, does not require insurance companies to assume fiduciary status with respect to independent insurance agents.

Next Steps

The 2024 final rule and PTE package are scheduled to take effect September 23, 2024, with a one-year transition period for complying with the changes to PTE 2020-02 and PTE 84-24. During this time, investment advice fiduciaries must comply with the Impartial Conduct Standards and provide a written acknowledgment of fiduciary status.

The DOL has been attempting to update its fiduciary rules for years without longstanding success. While there are many supporters of these efforts to update the rules and protect retirement investors from advisors making recommendations based on their own financial interests, there are many stakeholders in the industry who are opposed to these changes for being too broad and the potential for making investment advice more expensive and less accessible for retirement investors because of additional compliance costs. Lawsuits seeking to delay the effective date or vacate all or parts of the rule/PTE package are expected.

As always, IRALOGIX continues to attentively monitor this regulation. Our platform and procedures will continue to assist our clients in navigating these regulatory requirements with minimal disruptions to their operations. We will provide further updates in the months ahead.

IRALOGIX Announces CEO Transition

Dave Bernard steps down; board appoints Peter de Silva to lead company into its next growth phase

IRALOGIX, a leading retirement industry fintech provider, today announced that Dave Bernard stepped down as chief executive officer effective immediately. The board has appointed Peter de Silva as the new CEO of IRALOGIX. de Silva has been an IRALOGIX investor and board member for the past two years. He is a nationally recognized and highly accomplished financial industry executive.

“On behalf of the board, I want to thank Dave and the IRALOGIX team for the great job they have done in leading the company from a fledging startup to a truly disruptive force in the retirement market,” says Jim Smith, an IRALOGIX board member. “During his tenure Dave has been instrumental in not only building out a great product and a cutting-edge technology platform, but also assembling a very talented group of employees and senior leaders.”

de Silva assumes the reins at a critical juncture in IRALOGIX’s history as it continues to mature as a company. Last fall’s successful capital raise allows IRALOGIX to capture the significant growth opportunities ahead. de Silva has more than 35 years experience leading established companies in the financial services industry, including roles as president of TD Ameritrade’s retail business, president of Scottrade Financial Services, CEO of UMB Bank, and 17 years of experience at Fidelity Investments in various leadership roles.

“This is a really exciting time for IRALOGIX, its employees, and clients,” says de Silva. “We’ve had tremendous success helping to redefine and in many cases disrupt the wealth industry beginning with IRAs . My objective is to continue our innovative heritage, while speeding up our growth trajectory, scaling our business, and expanding our client base and distribution channels. I am thrilled to be given this opportunity to lead IRALOGIX as it enters its next lifecycle and to help solidify our mission of transforming the retirement experience for every investor in America.”

IRALOGIX enables institutional partners to rapidly launch profitable white-label IRA programs that leverage institutionally priced investments as well as professional advice and education. The company’s modular technologies are cloud-native and support a fully paperless process with no account minimums.

IRALOGIX TEAMS UP WITH SHLOMO BENARTZI AND PENSIONPLUS TO OFFER PERSONALIZED RETIREMENT SPENDING SOLUTION

Complementary accumulation and decumulation tools target retirement security for all

IRALOGIX, a leading retirement industry fintech provider, today announced a partnership with PensionPlus, an innovative decumulation solution that makes it easy for retirement plan participants to create a highly personalized retirement plan designed to last for their entire lives while keeping their current investments.

According to industry leader and PensionPlus CEO Shlomo Benartzi, “Collaborating with IRALOGIX will allow PensionPlus to further its goal of democratizing retirement income planning for all participants, including the tens of millions of Americans relying on IRA accounts.”

“We are honored to partner with Shlomo Benartzi and his team at PensionPlus as we integrate the most advanced post-retirement drawdown solution with the power of IRALOGIX’s groundbreaking IRA technology,” said David Bernard, Chief Executive Officer at IRALOGIX. “Together, we are creating fundamental change across the IRA and Wealth Management industries on behalf of every investor and all those who support them. PensionPlus gives IRA investors total control over their retirement savings and the opportunity to customize their retirement ‘paycheck’ for their specific needs.”

In 2024, 11,000 Americans are expected to celebrate their 65th birthday daily. Many struggle to convert their savings into a retirement paycheck that lasts the rest of their lives. Others are concerned about adhering to their income plan once in retirement and ensuring they don’t outlive their savings. Americans need a new and better way to create a personalized plan that matches their goals and preferences.

With PensionPlus, the benefits are clear: participants get a sustainable retirement paycheck while remaining in complete control of their investments (no transfer of assets required). In addition, PensionPlus monitors the plan (including spending and withdrawals) and adjusts the plan as needed based on portfolio performance and inflation. Additional features include an annual bonus payment and tax optimization. By creating an easy and affordable lifelong solution, PensionPlus aims to give all Americans the peace of mind they deserve in retirement.

Survey Reveals New Era of Financial Independence as Millennials Seek to Redefine Retirement

Retirement Redefined as Gateway to Greater Flexibility, Not Necessarily an Exit from the Workforce

Millennials are Moderately Confident They’ll Have Sufficient Retirement Savings

Majority Won’t be Swayed by Taylor Swift’s Endorsement of a Presidential Candidate 

Pittsburgh, PA, March 11, 2024 – A new survey reveals how millennials are reshaping the retirement landscape, defining it by financial independence rather than an age-based benchmark. The study, which marks a new understanding of retirement planning’s shifting paradigms, surveyed millennials nationwide, shedding light on the evolving attitudes and behaviors surrounding their retirement readiness, retirement confidence, and consumer debt. The survey was commissioned by IRALOGIX, a retirement industry fintech provider, and took place in February 2024.

“Millennials are revolutionizing the traditional concept of retirement along with the very definition of the word itself, offering a fresh perspective unlike any other generation in the U.S.,” remarked Lowell M. Smith, Jr., co-founder of IRALOGIX and an expert on retirement matters. “The survey underscores a fundamental shift from what we previously understood: millennials don’t perceive retirement solely as a departure from the workforce. Instead, they define it as a stage of life characterized by enhanced career flexibility and an opportunity to pursue passion projects and hobbies, fostering personal fulfillment and making a meaningful social impact.”

Key findings follow below. 

Key Findings:

  • 51% say retirement is defined not by age 65 but by financial independence where they can indulge their lifestyles without relying on traditional employment; 24% noted retirement at age 65 (i.e., ceasing all work) is a goal they’re highly focused on working towards; and 16% responded that retirement is not necessarily an exit from the workforce, but a time of greater flexibility in their lives.
  • When asked if they see themselves retiring at some point, 47% of respondents said they will retire
    as soon as they can afford it,” and 22% will keep working, either because they “enjoy it or they don’t have sufficient retirement savings.”
  • Millennials are moderately confident (47%) that they will accumulate sufficient savings to someday retire; 29% have no confidence in their ability to save enough to retire.
  • When it comes to balancing short-term financial goals like vacations, buying a home, and paying down student loans/other debt with saving for retirement 62% indicated they try to “strike an even balance” between the two, and 29% are entirely focused on “living in the now” by focusing only on their short-term goals.
  • Millennials appear to be able to contain their consumer debt reasonably well, with 55% saying they have between $0 and $20,000 in debt, excluding their mortgages; 18% have up to $35,000 in debt. Just 11% say their debt exceeds $65,000.
  • The majority (55%) of respondents hold themselves accountable for ensuring they have sufficient retirement savings, while 25% say their employer is responsible, and 20% believe the government should provide their retirement savings.
  • Of those who answered “employer” to the previous question, 37% said to make a comfortable retirement viable, employers should offer a robust retirement benefits package like a 401(k) or similar plan along with a competitive employee match; 24% want a traditional Defined Benefit plan with investments selected by investment professionals, where the employer assumes all the risk and is required to pay the employee a fixed monthly sum when they retire 

Other Takeaways

  • When asked if they use technology like Robo-advisors, investment platforms, or AI to aid in their retirement planning, 60% said “no,” 28% answered “yes,” and 12% are “thinking about it.”
  • 61% make regular monthly contributions to an employer-sponsored retirement plan like a 401(k), 403(b), SIMPLE IRA, or SEP IRA.
  • When leaving an employer where they had a retirement plan in place, 25% rolled it over into their new employer’s plan; 27% rolled it into an IRA; 31% left it “untouched” with their former employer; and 16% withdrew the balance and spent it.
  • Despite her fame and fortune, Taylor Swift doesn’t appear to hold much sway over millennials. When asked if her endorsement of a particular presidential candidate would have any influence on their vote, 71% said “no.” Just 29% answered “yes,” or “I haven’t given it any thought but I will.”

Methodology

The survey of 578 respondents was conducted online in February 2024 on behalf of IRALOGIX. Respondents, who skewed 56% female to 44% male, were drawn from a national sample of millennials, ages 28 – 43 with household incomes of $0 – $200,000 plus. To schedule an interview, or for a copy of the full survey results, please contact Scott Sunshine.

IRALOGIX APPOINTS JENNIFER PLESE DIRECTOR OF MARKETING

27-Year Wells Fargo Alum Brings deep participant-centric marketing expertise helping investors succeed financially

 Pittsburgh, PA, February 12, 2024 – IRALOGIX, a leading retirement industry fintech provider, today announced the appointment of Jennifer Plese as Director of Marketing. Plese assumed her new position February 5 and reports to Pete Littlejohn, Chief Revenue Officer.

“Jennifer has spent years building an exceptional career in the financial services sector, creating and executing marketing strategies for clients across diverse industries and assets under administration,” said Littlejohn. “Throughout her journey, Jennifer has demonstrated strategic innovation, unwavering client dedication, and inspirational team leadership. We are thrilled to welcome her to the IRALOGIX team, and eagerly anticipate the invaluable contributions her marketing expertise will bring as we drive forward with our expansion.”

Most recently, Plese served as Director of Marketing at Principal Financial Group (formerly Wells Fargo Institutional Retirement & Trust). In this capacity, she led participant communication strategy and execution. Before her role at Principal, Plese spent nearly 25 years as Vice President and Participant Experience Manager at Wells Fargo. During her tenure, she championed the delivery of exceptional participant experiences, crafting innovative solutions for over three million retirement plan participants.

“Many of my former colleagues have joined IRALOGIX, which is how I came to learn about the company and its pivotal role in the retirement space,” said Plese. “I’m delighted to reunite with my former co-workers and am eager to leverage my marketing expertise in support of IRALOGIX’s clients, products, and services.”

Plese’s philanthropic endeavors include roles on the Milwaukee Charitable Contributions Committee and the Minneapolis Community Funding Council. She was also recognized as a United Way Leader in Giving in the Greater Milwaukee Area.

Plese holds a B.A. degree in International Relations and Spanish from the University of Wisconsin-Madison and pursued Spanish studies at the University of Madrid, Spain.

Auto-Portability – An Optional Rollover Service

The Department of Labor recently released a proposed regulation explaining a new exemption created by the SECURE 2.0 Act that allows specific providers to charge a fee for conducting “automatic portability transactions.” Although Auto-Portability is designed to help workers manage their retirement accounts when changing jobs, it’s crucial for plan sponsors and service providers to understand what Auto-Portability can and cannot do.

What It Is

An Auto-Portability transaction is a rollover from a Safe Harbor IRA to an employer’s retirement plan for an active participant who is given prior notice and has not opted-out of the rollover. These Auto-Portability transactions only apply to Safe Harbor IRA accountholders with balances between $1,000–$7,000 who have been unresponsive or missing.

A few assumptions need to take place to facilitate this transaction. It assumes that the Safe Harbor IRA accountholder is now re-employed and is participating in their new employer’s 401(k) or other defined contribution plan. It also assumes that the new plan has agreed to accept Auto-Portability rollovers and is with a recordkeeper that is in the Auto-Portability network. Lastly, it assumes that automatically moving the monies back to an employer plan is in the best interest of the IRA accountholder versus leaving it in an IRA and avoiding additional handling fees.

How It Works

The rules for automatic rollovers remain the same. Balances $7,000 and under may be rolled over to an IRA if the former employee doesn’t elect a direct distribution or rollover. Balances under $1,000 may also be rolled over based on the plan’s terms. If the plan sponsor follows DOL Safe Harbor rules, they are relieved of fiduciary responsibility when assets are automatically deposited into a Safe Harbor IRA.

After SECURE 2.0, if a Safe Harbor IRA is moved to an Auto-Portability Provider (APP), the APP will search for the account owner through the Auto-Portability network. If the account owner is participating in another employer’s plan within the network, the APP can roll over the IRA to the new plan and collect a fee after proper notice.

Benefits

  • Reduces abandoned retirement accounts due to unresponsiveness or outdated contact information.
  • Consolidates retirement savings into one account, potentially reducing fees.
  • Ensures investments align with the participant’s choices in the new plan or the plan’s default investment.

Considerations

  • This service is optional for plan sponsors and recordkeepers.
  • Both the recordkeeper and plan sponsor must agree to share data with the Portability Services Network and accept automatic portability rollovers.
  • Plan sponsors must prudently select the APP, considering fees, services, benefits, and risks.
  • The APP acts as a fiduciary if the account owner does not consent to the rollover, subject to DOL’s proposed regulations.
  • Currently, there’s only one APP active due to connectivity barriers across the recordkeeping industry.
  • If a plan participant wants to roll over funds to a new employer, a direct distribution or rollover initiated by the accountholder from the Safe Harbor IRA provider would likely be a quicker transfer solution.
  • IRALOGIX also believes that if DOL were to permit a Safe Harbor IRA default investment to include a qualified default investment alternative (QDIA) feature and require Safe Harbor IRA providers to offer quality diversification options, Auto-Portability and its expense and complication would not be necessary.

IRALOGIX Opportunities & Solutions

IRALOGIX builds institutional IRAs for its customers where the IRA in most cases is equal to or better than most 401(k) plans. We support innovation in the retirement industry and are exploring ways to participate in reducing abandoned retirement accounts.

IRALOGIX actively attempts to locate missing Safe Harbor IRA owners in order to give complete control to the IRA investor on what they want to do with monies. Additionally, individuals will soon be able to search for their lost retirement accounts, including those rolled over to Safe Harbor IRAs, through the “Retirement Savings Lost and Found” database created under SECURE 2.0 by the DOL/IRS.

New IRS Guidance on the New Roth SEPs and SIMPLEs

Almost one year after the SECURE 2.0 Act passed into law, the IRS is issuing guidance to help employers, IRA owners, and service providers begin implementing some of the changes made by the Act. This guidance, Notice 2024-02, provides information on 12 provisions from SECURE 2.0, including the provision that allows employees to designate SEP or SIMPLE IRA plan contributions as after-tax Roth IRA contributions.

Although the option to treat SEP and SIMPLE IRA contributions as Roth was effective beginning in 2023, a lack of guidance on plan documents, tax issues, and timing has prevented IRA providers from being able to offer these enhanced features to SEP and SIMPLE IRA plans. While this notice provides insight on taxation and certain IRS reporting, much is left to the imagination as to how and when these provisions can be implemented. More detailed guidance is needed in the form of plan documents, IRA documents, model notices and timing, but here’s what we know today: 

Employers have options – Employers are not required to offer a Roth option in their SEP or SIMPLE IRA plan. If they choose to offer it, they can offer Roth treatment just for employee contributions, just for employer contributions, or for both.

Existing IRA documents can be used – The documents used to establish SEP and SIMPLE IRA plans—and the IRAs to hold plan contributions—need to be updated for several major law changes that have occurred since these documents were last published or approved by the IRS. Until the IRS issues new documents or other guidance, existing documents may be used without formal amendment. This clarifies that plan and IRA establishment documents do not need to be updated to allow the new provisions, and Roth contributions made for an employee under a SEP or SIMPLE IRA plan will be deposited into a Roth IRA.

Notice and elections are required – If an employer wants to offer a Roth option, the employer must make a written election. Employers must also give employees the same opportunity to make Roth contribution elections as is given for making pre-tax contribution elections for SIMPLE IRA plans, and SEP plans must provide an “effective opportunity.” These conditions may require additional adoption agreement-type elections for employers and additional notices for employees. Employees must elect in writing to treat contributions as Roth before the contributions are made to the plan. Employers cannot default employees into Roth contributions, such as with an automatic enrollment feature in a SIMPLE IRA plan.

Employee Roth deferrals require payroll changes – If an employee elects to treat their SIMPLE IRA salary deferral as Roth, the employer (or payroll provider) will calculate the deferral amount after calculating payroll taxes. In other words, these contributions are subject to income tax withholding, FICA, and FUTA taxes. Employees must include Roth deferrals in their taxable income for the same year in which the employee would have received the money as wages. These after-tax deferrals will be reported to the employee and the IRS by the employer on Form W-2, Wage and Tax Statement.

Employee Roth treatment of employer contributions is more complicated – If an employee elects to treat employer contributions under a SEP or SIMPLE IRA plan as Roth contributions, the employer will make and deduct the contribution in the same manner as they have historically done. However, a Form 1099-R must be generated to report the amount of employer contributions as a taxable conversion to the employee’s Roth IRA. This reporting will trigger taxation for the employee in the year the contribution is made (regardless of whether the contribution was made for the prior plan year.) Employees must be made aware of this timing distinction for tax planning purposes.

Next steps

The IRS has taken the first step in assisting employers, IRA owners, and service providers with understanding how SEP and SIMPLE Roth contributions may be made. But there are still many unanswered questions, such as whether providers will draft addendums to plan agreements to capture employer elections, the timing for notifying employees of new features and capturing their elections, when the features can be added to existing plans, and whether SIMPLE-Roth assets can be commingled with regular Roth assets.

IRALOGIX is working diligently to ensure our platform and procedures continue to assist our clients in navigating the regulatory framework and new opportunities. We will provide further updates in the months ahead.

DOL Proposes New Fiduciary Investment Advice Rule

In its third attempt to update a 1975 regulation defining when a financial professional is providing fiduciary investment advice to retirement investors, the Department of Labor (DOL) is proposing a new “Retirement Security” rule that would require a uniform standard of conduct for more types of financial transactions and investments, including one-time rollover advice. The DOL believes the existing regulation, established in 1975, should be updated to better protect retirement investors as they rely on the advice of broker-dealers, investment advisers and insurance agents when making complex decisions about managing their retirement savings.

Expanded Reach

Regulatory agencies, like the DOL, FINRA and SEC, have long been concerned that despite the trust and reliance many investors place in financial professionals, some advice providers who are not subject to a “best interest” standard make recommendations that favor their own financial interests rather than the investor’s best interests. Of particular concern are recommendations to roll over a lifetime of retirement plan savings to an IRA with high fees or retail investment pricing or to purchase an annuity. The DOL’s proposal pulls into its definition of fiduciary advice certain investments and transactions it believes are not subject to fiduciary standards under ERISA or other regulators’ rules, including recommendations to distribute or roll over retirement plan savings to an IRA, recommendations on insurance products and other non-securities investments (e.g., bank products, real estate), and advice that broker-dealers render to plan sponsors at a plan level.

A New Fiduciary Status Test

The proposal would replace the 1975 five-part test for determining when investment advice or recommendations trigger ERISA fiduciary status with a new fiduciary status test. A financial professional would be an investment advice fiduciary under ERISA and the Internal Revenue Code if they

  1. Make an investment recommendation or provide advice to a retirement investor (plan, plan fiduciary, plan participant or beneficiary, IRA, IRA owner or beneficiary or IRA fiduciary),
  2. Receive a fee or other compensation for the advice or recommendation, and
  3. Make the recommendation in the context of a professional relationship in which an investor would reasonably expect to receive sound investment recommendations that are in their best interest:
    • The person directly or indirectly (e.g., through or together with any affiliate) has discretion over investment decisions for the retirement investor;
    • The person directly or indirectly (e.g., through or together with any affiliate) makes investment recommendations to investors on a regular basis as part of their business, and the recommendation is provided under circumstances indicating that the recommendation is based on the particular needs or individual circumstances of the retirement investor and may be relied upon by the retirement investor as a basis for investment decisions that are in the retirement investor’s best interest; or
    • The person represents or acknowledges that they are acting as a fiduciary when making investment recommendations.

No “Regular Basis” Requirement

The proposed definition does not include the requirements from the 1975 regulation that a financial professional provide advice to the investor “on a regular basis” or that there be a “mutual agreement, arrangement or understanding” that the advice will serve as a “primary basis for investment decisions.” The DOL states these elements “worked to defeat retirement investors’ legitimate expectations when they received investment advice from trusted advice providers.” As proposed, fiduciary status for a financial professional providing nondiscretionary advice would be based on whether they make investment recommendations as a regular part of their business and make a personalized recommendation to the investor who reasonably believes the advice is being made in their best interest.

The DOL notes that if fiduciary status is applied to a particular recommendation, the proposed rule does not impose an automatic fiduciary obligation to continue to monitor the investment or the retirement investor to ensure the recommendations remain prudent and appropriate for the plan or IRA.

Only Two PTEs Available

Financial professionals who meet the DOL’s definition of investment fiduciary must satisfy the conditions of a prohibited transaction exemption (PTE) to mitigate conflicts of interests and receive payment that would otherwise be prohibited by law. The DOL is proposing amendments to several of its existing PTEs to ensure all retirement investors receive the same standard of care, regardless of the product or service they receive (including PTEs 75-1, 77-4, 80-83, 83-1, 86 84-24-128 and 2020-02). As a result of these amendments, the only exemptions available for receiving conflicted compensation would be PTE 2020-02 for advice with respect to the wide universe of investments recommended to retirement investors, or PTE 84-24 for recommendations by independent insurance agents.

Although PTE 2020-02 is being amended to include more disclosure and documentation requirements, the DOL states the compliance obligations are generally consistent with those set forth in the SEC’s Regulation Best Interest (Reg. BI) and Interpretation of Conduct for Investment Advisers for advice to retail customers on securities. Therefore, broker-dealers and investment advisers that have already adopted compliance with Reg. BI or the fiduciary obligations under the Advisers Act “should be able to adapt easily to comply with the PTE.”

Other changes to PTE 2020-02 include coverage of pure robo-advice, expanded disqualifications from using the PTE, and additions to the retrospective review and self-correction processes to mandate self-reporting and payment of excise taxes.

Next Steps

The DOL and its proposals have a long road ahead before these rules could become effective, including probable legal challenges from affected industries. The first step in the process will be for the DOL to review comments on its proposal, which must be submitted to the DOL by January 2, 2024.

As always, IRALOGIX continues to vigilantly monitor this regulation. Our platform and procedures will continue to assist our clients in navigating these regulatory requirements with minimal disruptions to their operations. We will provide further updates in the months ahead.

Morningstar Investment Management & Envestnet Team Up to Deliver Personalized IRAs

NEWS PROVIDED BY Envestnet
06 Nov, 2023, 08:00 ET

_______________________________________ 

New Managed Accounts Offering Will Enable Asset Management Firms to Offset High Cost of Administering IRA

The IRA Accounts and Servicing will be Powered by Leading Fintech Company, IRALOGIX

CHICAGO and BERWYN, Pa., Nov. 6, 2023 /PRNewswire/ — The retirement groups within Morningstar Investment Management LLC (“Morningstar Retirement”), a subsidiary of investing insights firm Morningstar, Inc. (Nasdaq: MORN), and Envestnet, a leading provider of integrated technology, intelligent data and wealth solutions, are planning to launch a managed accounts service for Individual Retirement Accounts (IRA) powered by IRALOGIX. This new offering will be custodied by Matrix, a subsidiary of Broadridge Inc (NYSE: BR) and will make it easy for individuals—regardless of account balance—to receive personalized investment advice on their IRAs. It combines Envestnet’s fund selection and model portfolio-building capabilities with Morningstar Retirement’s managed accounts methodology, investment engine, and digital delivery platform.

Expected to launch in the first quarter of 2024, the service will be packaged within an IRA serviced by IRALOGIX, which offers low-cost investments by leveraging institutional share classes rather than retail share classes. Morningstar Investment Management’s platform blends those portfolios to design unique portfolios that are aligned with an account holder’s specific profile and situation. It then manages that portfolio for the account holder, adjusting the investment strategy as the person’s situation and investment objectives evolve. The IRA product(s) will also have no minimum account size requirements, making it easier for those with low balances to gain access to personalized advice. IRALOGIX is a leading fintech company in which Morningstar Inc. is an investor.

“We believe the IRA space is ripe for innovation and personalization,” said Brock Johnson, president of Morningstar Retirement. “Nearly 40 percent of U.S. households own an IRA, yet the vast majority do not have an advisor and will never be able to retain an advisor because their balances are too small. With the help of Envestnet Workplace Solutions and IRALOGIX, we aim to advance access to personalized investment advice and institutionally priced investment options in the IRA space. Every account holder should have access to not only a professionally built investment portfolio, but also one highly configured to their specific needs and objectives.”

This service uses the same platform that powers Morningstar Retirement’s traditional managed accounts service, which today brings personalized investment and savings advice to more than 2 million participants in employer-sponsored retirement plans. This latest managed account offering allows for Envestnet to develop the fund-level models that serve as the bedrock for the portfolio-building process within the IRA service.

“This service is a very powerful collaboration that we believe will give asset managers, broker-dealers, recordkeepers, and advisors options to shift the growing cost of administering their IRA programs to a private-labeled offering, while still retaining their existing revenue streams,” said Sean Murray, Head of Envestnet Workplace Solutions. “It is a win for investors. It is a win for asset managers. And it is a win for the wealth and retirement industry.”

The managed IRA solution enables Envestnet to develop model portfolios based on an asset manager’s underlying proprietary funds and delivered through Morningstar Retirement’s managed accounts service.

About Morningstar Retirement

The Morningstar Retirement group within Morningstar Investment Management LLC, a subsidiary of Morningstar, Inc., and a registered investment adviser, offers products designed to help individuals reach their retirement goals. Our products and services also enable industry players to differentiate their services, stay competitive, and reach new markets. We provide some of the industry’s leading off-the-shelf offerings and can collaborate with our clients to design new products from the ground up using our unique data integrations, distribution networks, investment expertise, and methodologies.

About Envestnet

Envestnet is transforming the way financial advice is delivered through an ecosystem of technology, solutions, and intelligence. By establishing the connections between people’s daily financial decisions and long-term financial goals, Envestnet empowers them to make better sense of their finances and live an Intelligent Financial Life™. With more than $5.4 trillion in platform assets—more than 107,000 advisors, 16 of the 20 largest U.S. banks, 47 of the 50 largest wealth management and brokerage firms, more than 500 of the largest RIAs, and thousands of companies, depend on Envestnet technology and services to help drive better outcomes for their businesses and for their clients.

Envestnet refers to the family of operating subsidiaries of the public holding company, Envestnet, Inc. (NYSE: ENV). For more information, please visit www.envestnet.com, and follow us on LinkedIn and X (@ENVintel).

About IRALOGIX

IRALOGIX™ is reshaping the landscape of the $13 trillion IRA marketplace through its state- of-the-art wealth management technology. This innovative platform offers fully paperless, white-label IRA record-keeping solutions, allowing financial institutions to customize their IRA offerings seamlessly. With the flexibility to compete effectively across all segments of the IRA market, regardless of account size. Institutional clients have the freedom to utilize their internal investments and advisory capabilities or opt for top-tier industry providers. By integrating with your market strategy, IRALOGIX streamlines IRA services, empowering business expansion profitably. Explore more about their offerings at www.iralogix.com.

About Broadridge

Broadridge Financial Solutions (NYSE: BR), a global Fintech leader with over $6 billion in revenues, provides the critical infrastructure that powers investing, corporate governance, and communications to enable better financial lives. We deliver technology-driven solutions that drive business transformation for banks, broker-dealers, asset and wealth managers and public companies. Broadridge’s infrastructure serves as a global communications hub enabling corporate governance by linking thousands of public companies and mutual funds to tens of millions of individual and institutional investors around the world. Our technology and operations platforms underpin the daily trading of more than $10 trillion of equities, fixed income and other securities globally. A certified Great Place to Work®, Broadridge is part of the S&P 500® Index, employing over 14,000 associates in 21 countries.

For more information about us, please visit www.broadridge.com.

Envestnet is separate from and not affiliated with either Morningstar, Broadridge, or IRALOGIX. This material should not be construed as a recommendation or endorsement of any particular product, service, individual or firm.

This release refers to products or services that may be in development and not yet available. Accordingly, nothing herein should be construed as a representation or legal agreement by Envestnet to make available specific products or services (including, without limitation, concepts, systems or techniques.)

 

SOURCE Envestnet