PLANADVISER - November/December 2021 - 39

compliance consult
David Kaleda
'Window' of Opportunity
Brokerage accounts open up possibilities for service-but also for PTs
DEFINED contribution (DC) plans covered by the Employee
Retirement Income Security Act (ERISA) may include participant-level
brokerage accounts. Such accounts may be used
as a feature that allows all participants access to a greater
array of investments than the plan's core lineup. In other
cases, they may be used as a tool to allow advisers to provide
brokerage services or advisory services to the participants.
Each of these scenarios raises its own issues with regard to
compliance with ERISA and other applicable laws.
In the first instance, a plan fiduciary
that allows participants to direct the investment
of the assets in their plan accounts
may make available brokerage accounts to
participants through a feature often called
a brokerage window. The fiduciary offers it
alongside the plan's core investment lineup.
Through the window, the participant may
invest in a host of options not otherwise
available under the plan, including mutual
funds and other securities such as, sometimes,
unregistered securities.
Advisers generally maintain a client
Oftentimes,
brokerage
accounts are
case, the adviser's primary relationship is with the participant.
The brokerage account is the mechanism whereby the
participant will invest his account balance. Therefore, the
participant does not intend to utilize the plan's core investment
lineup, if any. Oftentimes, brokerage accounts are not
established for all of the participants. Such accounts are
held at the adviser's firm or held away at another firm. The
adviser likely must comply with the Securities and Exchange
Commission (SEC)'s Regulation Best Interest when he makes
recommendations regarding the participant's
trades in the plan's brokerage account
and must comply with the fiduciary requirements
of the Advisers Act in the account as
an advisory account.
Additionally, the adviser may have to
not established
for all of the
participants.
relationship with the plan's named fiduciary rather than the
individual participants. They can play an important role in
advising that fiduciary on investment lineup construction
and integrating the brokerage window feature into the plan,
such as whether to make a window available in the first place
or to restrict the investment options in which the plan participants
may invest through it. For example, if a participant
may invest in uncovered calls and puts, that person's account
balance could fall below zero, which raises compliance issues
if the fiduciary intends to abide by ERISA Section 404(c).
Additionally, if the participant may invest in certain
unregistered securities, ownership of such securities can
result in the plan incurring taxable income called unrelated
business taxable income. To the extent an adviser provides
investment advice in connection with brokerage windows, he
may very well be acting as a fiduciary for purposes of ERISA
and thus must comply with it when advising the named fiduciary.
Also, the adviser likely acts as a fiduciary under the
Investment Advisers Act of 1940.
Another practice is that one or more plan participants in
an ERISA-covered DC plan will establish brokerage accounts
with a broker/dealer (B/D) so an adviser may provide
brokerage services or advisory services to the participant
with regard to that person's plan account balance. In this
comply with ERISA with respect to recommendations
he makes. If the participant
has an advisory account and the adviser
provides what the Advisers Act deems
investment advice to that individual, the
adviser likely acts as an investment advice
fiduciary for purposes of ERISA. Therefore,
the adviser should make such recommendations in accordance
with ERISA's fiduciary duty and prohibited transaction
(PT) provisions.
On the other hand, if the adviser provides brokerage
services, he may or may not provide investment advice
for purposes of ERISA. That will depend on the facts and
circumstances. But he should not automatically assume he
does not act as a fiduciary in respect of a brokerage account.
The Department of Labor (DOL), last year, adopted prohibited
transaction exemption (PTE) 2020-02. In the preamble
to the PTE, the DOL changed its interpretation of its longstanding
regulation defining the term " investment advice "
for purposes of ERISA. As a result, an adviser is more likely to
be a fiduciary when providing recommendations in connection
with brokerage services. In that case, he would have to
comply with ERISA's fiduciary provisions and certain prohibited
transaction exemptions such as PTE 2020-02.
Advisers should consider how they may be of assistance
with regard to such accounts and what their compliance
responsibilities are under applicable law, including ERISA.
David Kaleda is a principal in the fiduciary responsibility practice
group at Groom Law Group, Chartered, in Washington, D.C.
planadviser.com November-December 2021 | 39
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PLANADVISER - November/December 2021

Table of Contents for the Digital Edition of PLANADVISER - November/December 2021

A Shift in the Tech Landscape
Strength in Diversity
Future Faces
A Workforce in Flux
Fee Models Are Shifting
Nonenforcement Policies
‘Window’ of Opportunity
PLANADVISER - November/December 2021 - Cover1
PLANADVISER - November/December 2021 - Cover2
PLANADVISER - November/December 2021 - 1
PLANADVISER - November/December 2021 - 2
PLANADVISER - November/December 2021 - 3
PLANADVISER - November/December 2021 - 4
PLANADVISER - November/December 2021 - 5
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PLANADVISER - November/December 2021 - 12
PLANADVISER - November/December 2021 - 13
PLANADVISER - November/December 2021 - 14
PLANADVISER - November/December 2021 - 15
PLANADVISER - November/December 2021 - 16
PLANADVISER - November/December 2021 - 17
PLANADVISER - November/December 2021 - A Shift in the Tech Landscape
PLANADVISER - November/December 2021 - 19
PLANADVISER - November/December 2021 - 20
PLANADVISER - November/December 2021 - 21
PLANADVISER - November/December 2021 - 22
PLANADVISER - November/December 2021 - 23
PLANADVISER - November/December 2021 - Strength in Diversity
PLANADVISER - November/December 2021 - 25
PLANADVISER - November/December 2021 - 26
PLANADVISER - November/December 2021 - 27
PLANADVISER - November/December 2021 - 28
PLANADVISER - November/December 2021 - 29
PLANADVISER - November/December 2021 - Future Faces
PLANADVISER - November/December 2021 - 31
PLANADVISER - November/December 2021 - 32
PLANADVISER - November/December 2021 - 33
PLANADVISER - November/December 2021 - A Workforce in Flux
PLANADVISER - November/December 2021 - 35
PLANADVISER - November/December 2021 - Fee Models Are Shifting
PLANADVISER - November/December 2021 - 37
PLANADVISER - November/December 2021 - Nonenforcement Policies
PLANADVISER - November/December 2021 - ‘Window’ of Opportunity
PLANADVISER - November/December 2021 - 40
PLANADVISER - November/December 2021 - Cover3
PLANADVISER - November/December 2021 - Cover4
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