PLANADVISER - November/December 2018 - 7

impartial conduct standards and disclosure requirements
that will apply to both financial advisers and broker/dealers
(B/Ds) serving retail clients, which, in the eyes of the SEC,
include retirement plan participants. The retirement plan
and adviser industries have long called for the DOL and SEC
to work together on a new fiduciary-or conflict-of-interest
rule. There is conjecture that the corresponding dates on
the agencies' agendas signify this is happening.
PTE Request for Automatic Portability
The Department of Labor (DOL) has issued an advisory
opinion letter in response to a prohibited transaction
exemption (PTE) request by J. Spencer Williams, founder,
president and CEO of Retirement Clearinghouse (RCH).
Williams had sought the DOL's opinion concerning the
status of certain parties as fiduciaries within the meaning
of Section 3(21)(A) of the Employee Retirement Income
Security Act (ERISA) and Section 4975(e)(3) of the Internal
Revenue Code (IRC). His request pertained to actions undertaken
as part of RCH's automatic portability program.
According to the DOL, when plan sponsors or other
responsible fiduciaries choose to have a plan participate
in the RCH program, they are acting in a fiduciary capacity
and would be subject to the general fiduciary standards
and prohibited transaction provisions of ERISA in selecting
and monitoring the RCH program.
However, once the assets are transferred to the default
individual retirement account (IRA), the plan sponsor of
the former employer's plan has no discretion or authority
over the decisions of the IRA owner or RCH related to any
future transfer of the default IRA assets.
A Call for Stronger Best Interest Regulations
The Securities and Exchange Commission (SEC)'s Investor
Advisory Committee (IAC) submitted its views on the SEC's
proposed Regulation Best Interest, Form CRS [Customer
Relationship Summary] and proposed Investment Advisers
Act fiduciary guidance.
The IAC says, " All personalized investment advice to
retail customers [should] be governed by a fiduciary duty,
regardless of whether that advice is provided by an investment
adviser or broker/dealer [B/D], to ensure that financial
professionals act in their customers' best interests and do not
place their own interests ahead of their customers' interests. "
The IAC says there are some actions the SEC should take
to ensure that this goal is put into action, starting with
clarifying that the standard for broker/dealers and investment
advisers should always be to act in their customers'
best interests. The IAC would also like the SEC to expand
the best interest obligation to dual registrant firms with
respect to rollover and account recommendations.
Further, the IAC would like the SEC to explicitly characterize
the best interest standard as a fiduciary duty and
says the commission should continue to test the feasibility
of proposed Form CRS disclosures.
The American Council of Life Insurers (ACLI) and the
Investment Adviser Association (IAA) both commented
on the SEC's standard of conduct proposals, for the most
part saying that additional interpretation of standards of
conduct for investment advisers is unnecessary and that
imposing broker/dealer standards on life insurers and
investment advisers is inappropriate.
As for Form CRS, which would create a requirement for
a uniform relationship disclosure document to be used by
broker/dealers and investment advisers, the ACLI says it is
not conducive to life insurance products.
UBS Sued Over Alleged RMBS Misrepresentations
The U.S. Justice Department filed a civil complaint against
UBS AG and several of its U.S. affiliates, alleging that UBS
defrauded investors throughout the U.S., as well as the
world, in connection with its sale of residential mortgagebacked
securities (RMBS) from 2006 through 2007.
RMBSs are often used by defined benefit (DB) plan sponsors
in their portfolios.
As detailed in the complaint, over those two years, UBS
misled investors about the quality of billions of dollars in
subprime and Alt-A-i.e., alternative A-paper-mortgage
loans backing 40 RMBS deals. Specifically, the complaint
alleges, in publicly filed offering documents, UBS knowingly
misrepresented key characteristics of the loans, thereby
concealing the fact that they were much riskier and much
more likely to default than UBS represented. Ultimately, the
40 RMBS sustained catastrophic losses.
" The complaint alleges that instead of ensuring that their
representations to investors were accurate and transparent,
UBS affirmatively misled investors and withheld crucial
information from them about the loans in its deals, " stated
U.S. Attorney Byung J. Pak in an announcement. " These practices
resulted in massive losses to investors, harmed homeowners
and ultimately jeopardized the banking system. "
However, UBS has fired back, saying the Justice Department's
claims are not supported by the facts or the law.
Putnam to Seek Supreme Court Input
Putnam Investments has asked, and the 1st U.S. Circuit
Court of Appeals has approved, a stay in a case alleging that
the investment firm engaged in self-dealing by including
high-expense, underperforming proprietary funds in its
own 401(k) plan.
In its motion, Putnam asked the Appellate Court to stay
the case pending the filing and disposition of a petition for a
writ of certiorari to the U.S. Supreme Court. The question for
the Supreme Court is whether the plaintiff or the defendant
bears the burden of proof on loss causation under Employee
Retirement Income Security Act (ERISA) Section 409(a).
The circuit courts are split on the issue of whether, when
a plaintiff shows that a fiduciary's breach of duty led to plan
losses, the burden shifts to the fiduciary to prove the loss
was not caused by its breach, or the burden is on the plaintiff
to prove that the fiduciary's imprudence resulted in the
loss. The question was set to go to the Supreme Court in a
different case, but the parties in that settled before the high
court had a chance to weigh in. -PA
planadviser.com November-December 2018 | 7
http://www.planadviserdigital.com/planadviser/november_december_2018/TrackLink.action?pageName=7&exitLink=http%3A%2F%2Fplanadviser.com
PLANADVISER - November/December 2018

Table of Contents for the Digital Edition of PLANADVISER - November/December 2018
