On Episode 86 of the CCO Buzz, Managing Director of Consultation Services, Tina Mitchell joins us to discuss the new ERISA exemption for financial professionals.
CCO Buzz: Hello and welcome back! Can you believe that we are already in Q2 of 2021? Spring is here and Form ADV is behind most of us. But with the completion of one regulatory compliance requirement, comes many more as we look further down the horizon of the year. Speaking of which, we’re joined by Managing Director of Consultation Services, Tina Mitchell, and she’s here to discuss the new Exemption issued by the Employee Retirement Income Security Act of 1974, which is commonly referred to as “ERISA”. She’s recently penned this month’s Risk Management Update that details key points that financial professionals should be considering at their firms.
With that, let’s begin!
Tina, for our listeners that aren’t well-versed in ERISA – could you give us a brief background?
Tina Mitchell: Certainly. So ERISA contains provisions that restrict fiduciaries to retirement plans from engaging in certain activities. These prohibited activities include, among other things, self-dealing, implementing principal transactions, and receiving compensation from third parties in connection with any transactions involving an ERISA plan.
Late last year, the Department of Labor adopted a new exemption under ERISA, and it became effective in February, and specifically covers these three prohibitions.
This exemption can be relied upon by Financial Institutions that are deemed to be investment advice fiduciaries, and these are like SEC and state registered advisers, broker-dealers, banks, and insurance companies along with their employees, agents, and representatives, so long as the exemption requirements are met, and they are not otherwise excluded from reliance.
CCO Buzz: Wow, that sounds like it covers almost everyone. I’ve read your article and it’s extremely informative at a high-level and it is full of practical compliance steps and information about the five main exemption requirements. But from your understanding what’s their purpose and what does each requirement include?
Tina Mitchell: So the main requirements are designed to safeguard against the conflicts of interest that apply to the prohibited activities that are covered under this exemption.
These requirements are basically:
- Adhering to Impartial Conduct Standards;
- Providing specific disclosures to retirement investors;
- Maintaining written Policies and Procedures;
- Performing an annual compliance review; and
- Having a senior executive officer complete an annual written certification.
In my article I actually provide a summary of each of these requirements, and we will be posting the article to our website soon, so, please be on the lookout. It’s titled: “The New ERISA Exemption – What Financial Professionals Need to Know.”
CCO Buzz: Good to know. Within your article you also provide a list of 10 steps that Financial Institutions can take to help to ensure compliance with the requirements of the exemption. Do you mind sharing a few with our listeners?
Tina Mitchell: Sure, I’ll share three of them. Financial Institutions should:
- First, analyze all compensation received by the firm and its Investment Professionals. This is going to be key, as institutions will also need to implement appropriate supervisory and mitigation controls that are geared toward addressing these incentivizing conflicts.
- Next, Develop forensic and transactional testing protocols to evaluate the effectiveness of your compliance controls and procedures that are applicable to the exemption.
- And then also provide extensive training and education to your employees, your supervisors, and Investment Professionals on the requirements of the exemption and the firm’s applicable policies and procedures.
CCO Buzz: Thank you for sharing, Tina! Well, you’ve heard it listeners – to get more info you’ll need to read our Risk Management Update titled, “The New ERISA Exemption – What Financial Professionals Need to Know,”. Thank you, so much for joining us today, Tina!
Tina Mitchell: Thanks for having me. I also want to say that if any of our listeners have any questions or would like assistance with implementing the requirements of the ERISA Exemption, please feel free to reach out to me and the Core Compliance team at (619) 278.0020 or at www.corecls.com. Thanks!
CCO Buzz: Well that’s it for this week’s episode. If you’d like additional information, please check out our website at www.corecls.com. You can also follow us on Facebook, LinkedIn, or Twitter @CoreCls. Thank you, and we hope you tune-in to next week’s episode of the CCO Buzz.