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.

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

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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

The Department of Labor is on the verge of unveiling a forthcoming “Retirement Security” rule. This rule represents a fresh set of regulations aimed at clarifying the circumstances under which non-discretionary investment recommendations by advisors to retirement plans, plan participants, and IRA owners will trigger fiduciary status under ERISA and the Internal Revenue Code.

When an advisor is classified as a fiduciary, they must adhere to rigorous standards of prudence and loyalty. Furthermore, ERISA mandates that fiduciaries abstain from participating in certain “prohibited transactions” that could potentially create conflicts of interest between the fiduciary and the investor. Such conflicts can arise when a fiduciary can boost their compensation by suggesting investments with higher fees or advocating for an IRA rollover.

Over the past decade, the Department of Labor has made multiple efforts to expand the range of advisory services covered by the fiduciary definition to ensure that advice always serves the best interests of retirement savers, including recommendations regarding IRA rollovers. Previous versions of the DOL’s revised ERISA 3(21) fiduciary rule and its interpretation of the “regular basis” component in Prohibited Transaction Exemption (PTE) 2020-02 have been legally contested by industry stakeholders and subsequently invalidated.

Once the new proposed rule is officially published, the Department of Labor will seek input from the industry and conduct hearings before moving forward to finalize the new fiduciary rule by the next summer. The timing is crucial for the DOL to safeguard the final rule from potential repeal if there is a change in the presidential administration following the 2024 election.

While the exact approach adopted by the DOL remains uncertain until the proposal is released and thoroughly assessed, it is anticipated that one-time IRA rollover recommendations will be incorporated into the definition of fiduciary investment advice.

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

NEW SURVEY PAINTS HARROWING PICTURE OF U.S. WOMEN’S ROAD TO RETIREMENT

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Social Security Seen By Many as Retirement’s “White Knight” 

Retirement Accounts Prematurely Drained to Meet Expenses 

Trump, Kennedy 2024 Get Tepid Thumbs-Up from Women, But Most “Not Interested”
in Any Potential Presidential Hopeful Regardless of Party

Pittsburgh, PA, September 12, 2023 – A new survey reveals a bleak outlook for the retirement prospects of countless American working women, with many saying retirement is completely off the table as financial necessity is compelling them to continue working during what under normal circumstances would be their retirement years. The “Women’s Road to Retirement” survey was commissioned by IRALOGIX, a retirement industry fintech provider, and took place late July through late August 2023.

“Given what we already know about Americans’ retirement readiness, we hypothesized the survey’s results would point to women being largely unprepared for retirement, reflecting the general trends of low savings and diminished confidence that retirement savings will last as long as needed,” said Lowell Smith, IRALOGIX co-founder and a noted authority on retirement issues. “What we weren’t expecting was the gravity of the situation. As many as seven in every ten women surveyed were certain their savings won’t last the length of their retirement, driving almost half of the respondents to consider relinquishing their independence and moving in with family members to save on expenses.”

Key Findings

• 71% of women surveyed will outlive their retirement savings.
  • 48% will deplete their savings between four and seven years into retirement.
  • 30% only have enough money to last between one and three years.
  • 7% have sufficient savings to last their entire retirement, no matter how long it may be.

• 60% had to “frequently choose” between covering essential expenses and putting money into their retirement savings.

• 55% are relying on Social Security to help fund their retirement.
  • 50% of those depending on Social Security require 41% to 60%-plus of their total retirement income (excluding any government financial assistance) from Social Security to make ends meet.

• 53% have to work in retirement out of financial need.
  • Other reasons include personal fulfillment; staying mentally active; healthcare benefits; and social interaction.

• 53% don’t have a backup plan if their retirement savings fall short of expectations.

• 49% are considering moving in with their adult children/family members to save on retirement expenses.

• 44% pointed to the high cost of living as the primary challenge to saving more for retirement.

• 28% blame themselves for not having started saving sooner.

• Other reasons include healthcare costs and medical expenses; lack of access to employer-sponsored retirement plans; and career breaks for childcare or caring for aging family members.

Other Takeaways

• Weighing in on the road to the White House, 21% of women who consider themselves Republican tapped Donald Trump as their pick, with Ron DeSantis in second place at 12%. In what may be a harbinger of things to come on election day, 47% cited “none of the above” when given the choice of presidential hopefuls, Donald Trump; Ron DeSantis; Nikki Haley; Mike Pence; Tim Scott; and Chris Christie.

  With 17%, Robert F. Kennedy, Jr., garnered the most Democratic nods from the survey’s respondents, closely followed by Bernie Sanders at 16%, from a list comprising Kamala Harris; Pete Buttigieg; Robert F. Kennedy, Jr.; J.B. Pritzker; Bernie Sanders; and Amy Klobuchar. 41% of Democratic women selected “none of the above” in response to the question.

• 59% don’t know how much money they’ll need in retirement, don’t have a plan to put aside any retirement money, or are struggling to live on their current income so they can’t think about retirement savings.

• Asked what advice they’d give their younger self/younger women about saving for retirement 54% said “start saving much earlier.” Other advice included:
  • Set realistic and achievable retirement savings goals and maintain them; when looking for a new job, ensure the company offers good retirement benefits and make the most of them; and seek out experts to help educate you about saving for retirement.

• Some out-of-“left field” guidance included “work just to live in the present and enjoy yourself – don’t worry about retirement,” followed by “don’t bother saving for retirement, it’s an outdated concept and most people can’t afford to retire comfortably anyway.”

• 43% are unprepared for the impact financial emergencies, like a job loss or medical expense, could have on their retirement savings.

• When asked to rate on a 1-10 scale, with 10 being the best possible outcome, the quality of their retirement life compared to when they were working, 35% of responses fell between #1 and #4. Just 3% chose #10, indicating a quality of retirement life comparable with their working years.

• Once retired, 35% won’t be able to meet debts accrued during their working years.

• 34% don’t have access to an employer-sponsored retirement plan.

• 34% would consider guaranteeing some of their retirement savings so they don’t outlive their money, with 48% of those saying they’d guarantee 20%.

• 29% said they’ll just “wing it” when it comes to future pressures on their retirement savings like supporting aging parents or contributing to a child’s/grandchild’s education.

• 22% emptied their employer-sponsored retirement account to meet non-retirement expenses.

“Compared to women from many other countries, countless American working women are being denied viable, dignified retirements for a variety of reasons highlighted by the survey, with some of these being fixable in the short- and medium-term,” notes Smith. “It’s incumbent on us in the financial industry to do a better job of reaching women as early as possible in their careers with education and guidance specifically geared to women instead of today’s one-size-fits-all approach. “And, employers need to ensure their employees have access to a corporate retirement plan so that future generations of women won’t have to trudge this same difficult, disappointing path.”

Methodology

The survey of 228 respondents was conducted online from late July through late August 2023 on behalf of IRALOGIX. Respondents were drawn from a national sample of women ages 30-60 with household incomes of $0 – $200,000 plus. To schedule an interview, or for questions about the survey, please contact Scott Sunshine. 

About IRALOGIX™

IRALOGIX is redefining the $13 trillion IRA marketplace through its industry-leading technology-enabled, fully paperless, white-label IRA record-keeping and technology solutions. The company’s proprietary technology solutions enable any financial institution to easily customize its IRA offering and compete effectively in all segments of the IRA market, regardless of account size. Through modular technology, institutional clients have the choice to use their internal investment or advisory capabilities or select from key industry-leading providers. IRALOGIX complements your market strategy, streamlines your IRA service options, and helps you expand your business across all segments of the industry, profitably. For more information, please visit www.iralogix.com.

IRALOGIX URGES CONGRESS TO PROTECT INTERESTS OF LOW-INCOME RETIREMENT SAVERS

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Legislation is Required to Help Those Who Need it Most to Save for Retirement

State-Mandated Retirement Plans Benefit Low-Income Workers, but an Even Playing Field is Required

 

Pittsburgh, PA, July 25, 2023 – IRALOGIX, a leading innovator in financial technology advancements that harnesses the power of its proprietary technology to offer IRA-focused retirement solutions to every segment of the wealth management industry, regardless of account size or type, today called on Congress to better serve the needs of low-income retirement savers.

According to the 2023 Retirement Confidence Survey conducted by the Employee Benefit Research Institute (EBRI) and Greenwald Research, workers and retirees who have the lowest incomes (less than $35,000) and savings (less than $10,000) and have a major problem with debt are more likely to agree that retirement savings are not a priority.

“While we applaud Congress for its efforts in enacting legislation aimed at enhancing retirement savings, the inescapable conclusion is it doesn’t go far enough, particularly for one of the most underserved groups, low-income workers,” said Lowell Smith, Co-founder of IRALOGIX. “Further legislative action is required to protect these workers’ retirement savings from being used for expenses other than retirement.”

Smith points to the need to enact restrictions on when accountholders can take distributions from retirement accounts. With individuals changing jobs every 3 to 4 years, each job change results in an opportunity to withdraw funds from an account and spend it, putting accountholders further behind in their retirement savings.

“We need restraints that withdrawals before 59 ½ are only permitted for hardship reasons or exceptions to the 10% early withdrawal provisions,” he says.

Additionally, all distributions from an IRA should be allowed to be paid back over time. There are several instances currently where funds can be paid back over time. It only makes sense to allow all distributions to be paid back.

Recently, Pension Portability was enacted to encourage workers who would have been automatically rolled over to an IRA by a former employer to automatically move the account to a new employer plan. This type of measure is beneficial because the original Automatic IRA Rollover Legislation enabled these rollovers to IRAs to become a dumping ground because of the limited investment options available and the lack of a requirement that the IRA programs that the accounts go into provide adequate diversification options.

The only investment options were money markets, CDs, savings accounts, and general accounts, all of which have historically had low returns.  In addition, often the returns aren’t enough to cover annual accountholder fees, much less meeting retirement growth needs when taking into account inflation rates.

Either Congress or the Department of Labor should enable rollovers to go into the same type of default funds that are available in automatic enrollment programs in plans like target date funds, balanced funds, and age-based portfolios and make the programs offer a diversification option as part of the IRA defaulted into.

State-Mandated Retirement Plans: One of These Things is Not Like the Other

Recent legislation required small businesses to provide retirement benefits to their employees. Some 30 states have considered requiring state-mandated retirement plans, but only 15 currently have signed these programs into law.

While this legislation should go a long way to help narrow the multi-trillion retirement savings gap in the US and help workers whose employers don’t offer retirement benefits play catch-up, current state-mandated retirement benefits are primarily up to each state.

“Federal intervention is needed to create one unified mandate to help businesses and service providers better meet state-mandated requirements,” says Smith. “In many cases, it’s low-income workers who have been underserved in the retirement benefits arena, and an even playing field would be beneficial to ensure every participant nationwide is treated equally.”

About IRALOGIX™

IRALOGIX is redefining the $13 trillion IRA marketplace through its proprietary, industry-defining technology platform. Through this, IRA account holders, regardless of account size, can benefit from an investment approach previously available only to the largest institutional investors. Financial intermediaries who outsource their IRA business to IRALOGIX’s white-label program can drive added revenues and profitability, simultaneously passing cost savings on to their clients. For more information, visit IRALOGIX.com.