Investment professional – Hledam Tue, 20 Jul 2021 18:31:07 +0000 en-US hourly 1 Investment professional – Hledam 32 32 Best Interests Standard of Due Diligence for Advisors # 59 | Faegre Drinker Biddle & Reath LLP Tue, 20 Jul 2021 18:23:56 +0000 The “fiduciary rule” of the Ministry of Labor, PTE 2020-02: the FAQ This series focuses on the new DOL fiduciary “rule”, which came into effect on February 16. This article, and the following ones, examine the Frequently Asked Questions (FAQ) issued by the DOL to explain the fiduciary definition and conflict of interest exemption. Key […]]]>

The “fiduciary rule” of the Ministry of Labor, PTE 2020-02: the FAQ

This series focuses on the new DOL fiduciary “rule”, which came into effect on February 16. This article, and the following ones, examine the Frequently Asked Questions (FAQ) issued by the DOL to explain the fiduciary definition and conflict of interest exemption.

Key points to remember

  • Prohibited Transactions Exemption 2020-02 – has two parts. Part of this is the expanded interpretation of the definition of a board of trustees (in the preamble to the PTE) which will cause many more recommendations for renewal to be considered trustees.
  • This article takes a look at DOL FAQ # 9 which explains that the Prohibited Transaction Exemption (PTE) 2020-02 provides relief from a rollover IRA’s indemnification ban due to a renewal fiduciary recommendation. .
  • The second part is an exemption that creates an exception to the rules on prohibited transactions for boards of trustees that result in compensation for a financial institution (for example, broker or investment advisor) and its investment professionals. The exemption includes compensation relief from a Rolling IRA and its investments (including annuities). FAQ # 9 explains this relief.


DOL’s Prohibited Transaction Exemption (PTE) 2020-02 (Improving investment advice for workers and retirees) allows investment advisers, brokers, banks and insurance companies (“financial institutions”) and their representatives (“investment professionals”) to receive conflicting compensation resulting from non-trust investment advice. discretionary pension plans, members and IRA owners (“retirement investors”). In addition, the DOL announced, in the preamble to the PTE, an expanded definition of the board of trustees, which means that many more financial institutions and investment professionals will be trustees of their recommendations to retirement investors and, by therefore, will need the protection provided by the exemption.

In April, the DOL published Faq which explain the fiduciary interpretation and the conditions of the exemption.

Reduction of prohibited transactions for rollover recommendations

This article discusses FAQ # 9, which deals with the relief provided by PTE 2020-02 for compensation resulting from renewal recommendations.

Q9. Does PTE 2020-02 provide prohibited transaction relief for rollover recommendations?

Yes, the exemption provides relief for rollover recommendations that result in prohibited transactions, as long as the conditions for the exemption are met. In addition to the other conditions, financial institutions must document and disclose in writing the specific reasons why a rollover recommendation is in the best interest of the retirement investor. In doing so, financial institutions should consider the retirement investor’s alternatives to a rollover, such as leaving the money in an employer’s plan and taking advantage of the investment options available in that plan, including options available other than those reflected in the investor’s current plan of retirement holdings. Financial institutions and investment professionals should make diligent and prudent efforts to obtain information about the existing benefit plan and the interests of participants therein. See Q15 for more information on factors to consider when making shift recommendations.

Let’s break this down into steps.

  1. If a renewal recommendation is given in a way that satisfies the 5-part fiduciary test (and, due to the new interpretation of the DOL, most renewal recommendations will be), the “financial institution” and ” investment professionals ”will provide fiduciary advice. The advice will be non-discretionary, as the participant must agree with the recommendation before it can be implemented.
  2. If the recommendation is a board of trustees, it will result in a prohibited transaction, since the financial institution (and / or possibly an affiliate, for example, an investment manager) and the investment professional will earn money from the IRA as a result of the fiduciary recommendation. If it is a prohibited transaction, the “compensation” must be returned to the IRA (instead of being kept by the financial institution and the investment professional)… unless the conditions d ‘an available PTE are not satisfied. In ERISA language, these terms are called “conditions”.
  3. Fortunately, PTE 2020-02 provides for this relief (i.e. it applies to non-discretionary fiduciary recommendations to move to an IRA, if the conditions for the exemption are met).
  4. As the FAQ states, the financial institution must document and disclose in writing the specific reasons that a rollover recommendation is in the best interest of the retirement investor (i.e. the member). I put in bold “specific reasons” because I have seen some efforts to comply that use a generic list of reasons that could apply to any retirement investor, instead of describing why the recommendation is in the best interest of the investor. participant in particular.
  5. To be able to determine why a rollover might be in the best interest of a participant, the financial institution and the investment professional must engage in a “prudent” process (to satisfy ERISA) and a ” in the best interest ”(to comply with the TEP). Fortunately, the requirements for both are the same. . . collect the relevant information about the plan, the IRA and then the participant, then evaluate that information to determine which option is in the best interest of the participant. (These four steps can be labeled (i) plan information, (ii) IRA information, (iii) participant information, and (iv) best interest process.)
  6. These four steps work until December 20 (due to a DOL and IRS non-enforcement policy in effect until then, which does not require you to follow Step 5). However, as of December 21, a fifth step is required, which is a written disclosure of why the referral is in the best interest of the participant.
  7. Unfortunately, some mistakenly believe that the fiduciary / best interest requirement for rollover recommendations is also postponed to December 21. This is not the case.
  8. The FAQ also notes that a financial institution and an investment professional must have and consider information about all investments in the plan, even those not used by the participant. This adds an additional element of difficulty in obtaining and evaluating information.

As the FAQ notes, Question and Answer # 15 provides more detail on what information to collect and assess as part of the fiduciary / best interests process. In a few weeks we will get to this FAQ.

Concluding thoughts

PTE 2020-02 offers relief from prohibited transactions resulting from recommendations for participants to roll over their accounts in IRAs. However, it does not exempt from the fiduciary / best interests standard of care. In this case, financial institutions and investment professionals should engage in a prudent process to collect and assess relevant information. This fiduciary requirement already applies and is only delayed until December 21.

On the other hand, many PTE 2020-02 requirements are, in effect, delayed until December 21, due to the DOL and IRS non-enforcement policy. But, even then, financial institutions and investment professionals must currently meet standards of impartial conduct, which are: a standard of care in the best interest, no more than reasonable compensation, and no materially misleading statements.

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The EU is the key to global stock markets Fri, 09 Jul 2021 16:57:05 +0000 On Wednesday, July 7, the European Commission published its latest forecast for gross domestic product (GDP) growth across the European Union. This year, the growth rate will reach 4.8% against an earlier expectation of 4.3% and the positive vibes will reach 2022. For the coming year, the GDP growth rate forecast has been revised upwards […]]]>

On Wednesday, July 7, the European Commission published its latest forecast for gross domestic product (GDP) growth across the European Union. This year, the growth rate will reach 4.8% against an earlier expectation of 4.3% and the positive vibes will reach 2022. For the coming year, the GDP growth rate forecast has been revised upwards by 4.4 to 4.5%.

The rebound in GDP in France will even reach 6% this year and 5% in Italy. Through these rebounds, GDP, in real terms, will return to its 2019 level in the fourth quarter of this year. These are forecasts for the entire EU area, with Italy remaining slightly behind the other major EU economies.

Spain’s consumer confidence index jumped to 97.5 in June, which was significantly higher than expected and makes it the highest reading in the past two years. Optimism in Spain is linked to the reopening of the country, especially the restart of the tourism industry. Certainly, the tourism sector will generate growth this year after last year’s severe lockdown. But there is still a long way to go before the industry hits its usual level.

This year’s economic rebound is mainly due to the sharp drop in economic growth last year, making it a technical rebound, but it was originally expected that by mid-this year, it was that is, now the giant EU bailout is expected to kick-start production growth. Last year, I even had an optimistic view that the bailout could create a real temporary economic recovery this summer.

The economic advance is of course positive, although what I pay most attention to are the numbers that indicate how consumers are feeling. I argue that it will be consumers who can deliver the surprise growth leap, although mobility should remain open and no new restrictions should be introduced again. That hope is balanced, as the 2019 variant of coronavirus disease (Covid-19) now shows how aggressive it is.

This hope is easy to shake, however, which was seen this week with the release of the German economic indicator ZEW. He fell like a stone with over 16 points, which came as a big surprise to the financial markets. This shows that parts of the business sectors on the European continent risk losing the newly generated optimism again. Some activity indices are in fact suddenly showing a more mixed picture.

There is no doubt that growth optimism is back in European stock markets and among European investors, and while the rebound growth that Europe is currently exploring may appeal to investors, the current growth was already built in. in the stock markets last year. . You could say that the growth outlook for next year is now the new positive fuel for European stock markets. Part of that is a valid reason to stay positive, but the giant rescue package is also included, at least once.

If I look around at the global stock markets, and then more specifically at the western stock markets, the growth story always carries the bulls higher. I also remain positive about the stock markets in general, but the strongest growth signals I recognize are in the US and UK, and further afield with China being back on track.

It is always unpredictable what can happen in the financial markets during the summer break. Markets may continue to climb in a market with low turnover, or alternatively, low turnover may suddenly be dominated by waning confidence in the growth story.

These developments have been the case on several occasions in the summer vacation market and I remain positive in my overall view of the global stock markets, although I am fully aware that a summer dive is a risk.

The majority of good income reports should generate some support as well, but a massive sale will have its roots in the weaker story. The euro zone is also the weakest link in the chain when it comes to global stock markets. I argued that consumers hold the key to greater growth, so it’s also consumers that I keep in mind for the opposite situation. There is no doubt that I am looking at all the data that says anything about how consumers in the eurozone are feeling – and I hope they continue to feel good.

Peter Lundgreen is the founding President and CEO of Lundgreen’s Capital. He is a professional investment advisor with over 30 years of experience and a power entrepreneur in investment and finance. Peter is an international columnist and speaker on topics relating to global financial markets.

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8 best investing apps in May 2021 Fri, 02 Jul 2021 04:42:03 +0000 Nowadays, everyone is looking for the opportunity to invest with different varieties of investment applications. And more importantly, investing not only saves you money, but gets your financial life back on track. With an investment app, you will have full control over your finances by tracking your expenses and returns. This is not all because […]]]>

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Steps to planning for retirement early – Forbes Advisor INDIA Wed, 30 Jun 2021 15:14:32 +0000 Ten years ago, retirement meant hanging up at 60. Today Indians do not hesitate to take a permanent break from work in their late forties or early fifties. This change is driven by two main reasons: Millennials embrace the FIRE concept and choose hobbies over just working until the end of their lives. The FIRE […]]]>

Ten years ago, retirement meant hanging up at 60. Today Indians do not hesitate to take a permanent break from work in their late forties or early fifties.

This change is driven by two main reasons: Millennials embrace the FIRE concept and choose hobbies over just working until the end of their lives.

The FIRE concept involves the choice of financial independence and early retirement. This is fueled by the fact that millennials actively choose jobs in the private sector, unlike their predecessors who were primarily engaged in government services where the retirement age was set. Starting a business or traveling the world has taken center stage and many Indians are considering early retirement to pursue their hobbies with ease.

While retirement planning requires a methodical approach, early retirement requires even more discipline. Here is how you can get started.

Steps to start planning for early retirement

Plan early

Early retirement requires early planning, perhaps from the first day you start making money. Unlike others, who plan to retire late, you don’t have the option to postpone your planning for even a year or two. Each lost year will only add to your burden to build a significant retirement body that can get you through your post-retirement life.

The first step in early planning is to calculate the body of work you would need to live a stress-free retirement life. While inflation is a big factor because it reduces the value of money over time, another lingering concern is that you might not be free from all your responsibilities.

For example, even after you retire, you may need to take responsibility for your children’s higher education and manage their wedding expenses. Therefore, your corpus must be large enough to absorb the costs that you know you will incur.

Start saving right from the start

Saving, one of the cornerstones of personal finance, should be the mantra to follow until the T for early retirement. Every penny saved is a penny earned. So, you have to try to save every penny possible, and it can be done easily with a few things to remember. For example:

  • Getting around by public transport

While everyone enjoys personal mobility, public transportation can help you save significantly on fuel costs in the long run. Add 20 to 25 years to that saving, and the amount will be quite large. You can also expect options like hailing a shared taxi to save on transportation costs.

  • Bring your food to the workplace

By transporting your food to the workplace, you can not only stay healthy, but also increase your savings. A hearty lunch can easily cost you a few hundred rupees. If you have a five-day work culture, eating out even three times can cost you at least INR 300 per meal.

If that money is saved, you can save at least 1,200 per month. You can do the math yourself to find out how much it will save you over the years.

This is a major culprit which is detrimental to your savings. Easy access to credit and large discounts can encourage you to make impulse purchases of items you may not need.

Impulse buying can not only derail your monthly budget, but can also lead you into a debt trap, which only becomes vicious over time. The solution is to refrain from impulse buying and to make a judicious evaluation when selecting the products and services for which you are opting.

  • Avoid lifestyle loans

An evolution of alternative lenders offering instant loans has made it easy to obtain loans in a jiffy. All you have to do is fill out an online application form, upload the relevant documents and the money is credited to your account within hours.

While such loans are a boon in an emergency, if you often opt for them for frivolous needs, you are inviting trouble. More often than not, these loans have a high interest rate, resulting in astronomical monthly payments (EMI), which is a major obstacle in your savings journey. The end result is the inability to save enough for retirement.

Invest in financial instruments adapted to your needs

Investing is also essential for growing your money and building a large retirement body. Start your investment journey in tandem with savings. Ideally, you should start investing as early as possible to harness the power of compounding, which is relevant for building wealth.

At the same time, it is essential to invest in an appropriate instrument and asset class. Since you are short on time, you need to invest actively, as a cautious outlook can lead to a shortfall. This is where you might consider tapping into the inflation-fighting potential of stocks. Simply put, investing in stocks can help you build wealth that can counter the effects of inflation.

You can invest in stocks in two ways: stocks and mutual funds. Both have their own advantages.

That said, investments in stocks must be disciplined and sustainable. To do this, systematic investment plans (SIP) in mutual funds are your best choice. With SIPs, you can kill two birds with one stone. It will help you save and grow your wealth at the same time.

Advantages of SIPs:

  • SIPs help you instill a disciplined saving habit, which is important for long-term wealth building.
  • SIPs help you accumulate more units at a lower price when the markets are down. This averages the cost of purchase over time.
  • You can increase the SIP amount at any time as you wish to build a larger corpus.
  • SIPs can be started with a small amount, starting at INR 1000 per month.

Plus, mutual fund SIPs help you diversify your investments and better prepare your portfolio to deal with sudden market swings. Suppose you started making money at age 25 and want to retire at age 50, a monthly SIP of INR 5,000 per month in a fund offering annualized returns of 10% per year for a period of 25 years can help you collect a corpus of just over ₹ 66 lakh.

If you delay your investments for five years, this corpus comes to just over 37 lakh INR. So, be sure to start early and take advantage of the power of the composition.

Increase your SIP amount with an increase in income

Once you see an increase in your income, be sure to increase the amount of SIP as well. This will add to your retirement fund. Taking the previous example, if you continue to invest 5,000 INR per month for 25 years with an expected annual rate of return of 10%, then your corpus would be slightly over 66 lakh INR. However, if you increase your SIP by 10% every year, it will exceed INR 1 crore.

Also, as you get closer to your goal, slowly switch from stocks to debt to prevent the corpus from becoming depleted due to market volatility.

Take out health insurance

Health insurance is another essential consideration for early retirement. Health care costs are rising at an alarming rate and a medical contingency can wipe out your savings in no time. Even if you are covered by your employer, coverage will only apply until the time you are employed.

Once you quit your job, coverage will also cease to exist. Health insurance premiums increase with age, and if you are looking to purchase health insurance in your late 40s and early 50s, the premiums will be quite high. If you develop lifestyle-related illnesses, the available health plans will have several terms and conditions that you may need to adhere to.

Get health insurance when you’re young

It makes sense to purchase health insurance when you are young and healthy. Not only will this result in lower premiums, but you will also be able to get extended coverage on relaxed terms and conditions. You can also easily overcome the waiting period for various ailments as you are likely to be in the rosy of your health.

It is equally essential to review your health insurance policy at different stages of life. For example, when you are single, the amount of coverage will not be that high. However, after marriage and a family, you would need more coverage. In addition, as we age, the body is susceptible to various ailments which can result in higher costs.

It is therefore essential to purchase a health insurance plan with adequate coverage and to purchase a stand-alone critical illness insurance policy. Critical illness insurance plans are different from regular health insurance plans and you pay a lump sum when you are diagnosed with one or more critical illnesses as mentioned in the policy.

These illnesses result in higher expenses and a regular health plan may not be enough to cover the high cost. The lump sum received from a critical illness insurance policy ensures that your savings and investments are not affected and that you are indeed on the road to early retirement.

If you are unable to purchase a stand-alone critical illness insurance plan, add critical illness riders to your basic health insurance policy. Endorsements are add-ons that will pay a lump sum upon diagnosis of the critical illness mentioned in the plan.

Limit the debt

It is not advisable to go into debt during your retirement years. It will not allow you to live a stress-free retirement life. In addition, with a breakdown of active income, it is difficult to pay off debt. If you use your retirement corpus to pay off loans, it can negatively impact your retirement life and even your relationships, for that matter.

Hence, it is essential to keep debts to a minimum and try to pay them off as soon as possible. If you’ve taken on a high priced loan, be sure to prepay as much as possible. The prepayment will reduce the principal amount and help you close the loan before its term. If you cancel a loan early, it will help you save big on interest and could also free you from debt when you retire.

Final result

Retiring early requires careful planning and, more importantly, making the right investments. Starting early is key as it helps you make changes halfway through if the need arises. Seek professional help if needed to make sure you are on the right track to having a wonderful retirement life.

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