ESI 2022 Annual Renewal Notices will be distributed via email the first week of October. For any questions, please contact ESI Licensing at 800-344-7437.
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Month: September 2021
Reminder: Upcoming Important Dates!
Important Reminder: Brokerage Account Paper Statement Fee will be Reflected on 9/30/21 Account Statements
In the 3rd quarter of 2021, National Financial Services, LLC. (NFS) will begin assessing a quarterly surcharge for the physical delivery of client trade confirmation and account statements. The new fee was originally communicated in FN 2020-30 in August of 2020. Click here for details.
2021 Premiere Select Retirement Accounts: Annual Maintenance Fee Cycle
National Financial Services will be charging Premiere Select Retirement accounts the annual $40.00 retirement maintenance fee on November 22nd, 2021. Review all the details here.
Advisor as Portfolio Manager – 2021 Continuing Education
ESI’s 2021 Continuing Education Program for Advisors using the ESI Illuminations Flagship Select or Directions programs is now available on the FIRE Solutions website. Those required to take the course have received an e-mail welcome letter with further instructions on how to launch and complete this course.
The deadline for taking the course is October 31st, and this training is only required for Advisors who are acting as Portfolio Manager, have invested accounts in Flagship Select or Directions, and have not yet completed training in 2021. If you didn’t receive the welcome letter, you are NOT required to take this course.
For details, please review Field Notice 2021-21: ESI Illuminations Advisor As Portfolio Manager CE
Questions? Sandy Colvin and Tom Longfellow are here to help!
Sandy Colvin: 802-229-3016 or SColvin@nationallife.com
Tom Longfellow: 802-229-7424 or Tlongfellow@nationallife.com
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Coming Soon: New Wealthscape InvestorSM Mobile App
After close of business on October 19, 2021, Fidelity Investments will introduce a new refreshed Wealthscape InvestorSM mobile app into the App Store and Google Play Store. The refreshed mobile experience provides an intuitive, streamlined design for users to access important account information quickly and easily from just about anywhere. Screen designs, colors, and fonts have been updated to provide a modern look and feel and a consistent experience across the browser and mobile channels. Key updates include enhancements to the account list, balances, positions, activity, trading, mobile check deposit, and biometrics. Click here for details including key points and screenshots.
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DOL 2.0: What Does It Mean to be a Fiduciary?
Why is this important to me?
Before we even begin to explain what it means to be a fiduciary under the Employee Retirement Income Security Act of 1974 (ERISA), you may be asking: “Why do I care?” Your status as an ERISA-fiduciary (or not) is important because the Department of Labor’s (“DOL”) new interpretation of its rules governing ERISA retirement plans and Individual Retirement Accounts (“Rules”), which becomes enforceable on December 20, 2021, will alter when the DOL considers you to be acting (or not acting) as a fiduciary. This affects what and how you can be paid for recommendations you make. If you work with ERISA-governed retirement plans or IRAs, you need to understand how these changes will impact your business.
The Impact of the Rule
When the DOL’s rules apply, people the DOL considers fiduciaries are generally prohibited from receiving:
- Compensation that varies depending upon the advice that is provided; or
- Compensation from a third-party, which is anyone other than a fiduciary’s client.
If such compensation is received, the DOL considers the transaction that generated the compensation to be a “Prohibited Transaction.” So, typically, if an ERISA fiduciary makes a sale that generates a commission, that sale is a Prohibited Transaction. That is because the compensation varies depending upon the advice that is given. For example, if you recommend that a client purchase a mutual fund, you will be paid. Conversely, if you recommend that they do not purchase the mutual fund, or anything else, you will not be paid. This means that the compensation varies based upon the advice that you provide. Additionally, commissions paid on products, like mutual funds and variable annuities, are paid by fund companies and insurance companies who are not your client and are, therefore, considered third parties.
If you are a fiduciary and you make investment recommendations regarding ERISA plans and IRAs – including recommendations to rollover assets to an IRA – you must meet the requirements of a Prohibited Transaction Exemption (PTE) in order to receive compensation that would otherwise be prohibited. Generally, this means complying with the new PTE (PTE 2020-02), or an existing PTE (PTE 84-24, which applies to recommendations of insurance products), to avoid violating DOL regulations when you receive compensation.
Many times, a client only needs information about their options. If you only provide education, allowing the investor to make their own decision, you are not an ERISA fiduciary and the Rules do not apply. So, if you provide only education to a client about their available options, without making a product or account recommendation, then the Rules (and their prohibited transactions) are not triggered.
However, if you feel you need to make a recommendation, you must ensure you understand the requirements that come with it.
So, when am I a fiduciary?
When are you acting as a fiduciary? Under ERISA, you are a fiduciary if you meet each element of a 5-part test:
- You provide advice or recommendations regarding purchasing or selling securities or other property of the plan for a fee;
- You do so on a regular basis;
- Your advice is given pursuant to a mutual agreement or understanding;
- The investment advice serves as a primary basis for the investment decision; and
- The advice is individualized.
If you meet the elements of the five-part test, you’re a fiduciary under ERISA. And under the new DOL interpretation of these rules, you are more likely to satisfy this test if you recommend a rollover from an ERISA governed plan (for example, a 401(k)), especially if you and your client contemplate providing ongoing advice in the IRA after the rollover occurs.
What’s the good news?…
PTE 2020-02 allows you to receive third-party compensation for advice related to ERISA accounts and IRAs, provided you meet certain criteria.
Under PTE 2020-02, if you make recommendations to an ERISA-governed plan or account, you can still receive commissions from the sale of a product related to that recommendation if you:
- Adhere to the Impartial Conduct Standards, which are:
- Advice must be in the best interest of the investor;
- Compensation must be reasonable;
- No material misstatements of facts.
- Additionally, you must:
- Disclose to the client your status as a fiduciary under Title I of ERISA;
- Provide a written description of the services available and conflicts of interest, and
- Prior to a rollover transaction, provide the investor the specific reasons for the recommended transaction.
The elements of the Impartial Conduct Standards are very similar to those of the SEC’s Regulation Best Interest, which went into effect in 2020. So, meeting the standards and requirements of Reg BI will generally satisfy the elements of the Impartial Conduct Standards.
With respect to the disclosure and notification requirements, ESI is in the process of amending its forms and disclosure documents to address the elements that must be provided to the client in conjunction with making a recommendation and prior to engaging in a transaction. For example, if you recommend that an investor roll their retirement assets into an IRA, you will have to provide the client with the rationale for the recommendation prior to the transaction. As such, ESI is working on revising its new account paperwork or, in some instances, creating new forms that will help you address such specific requirements under the Rules. So, stay tuned for additional information on updated forms and documents as we roll them out closer to the enforcement date.
Education may be the preferred path.
As a reminder, if you only provide education, you will not be an ERISA fiduciary, and the prohibited transaction rules do not apply. As you know, for rollovers under Reg BI, the Firm has a process to only educate clients on their rollover options. If you are comfortable using that process today, it will likely continue to serve you well when the DOL rules begin being enforced in December.
Look for our next communication, which will outline the difference between (1) providing education and (2) making a recommendation. And then, effective December 20th, you can decide which path – education or recommendation – best suits your business model.
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Report Retention Update in My View Portal
On November 1st Broadridge will be modifying the retention time on the reports available within My View Portal. These reports include, but are not limited to, Rep Commission Statements, Trail Detail, and Sales Blotters. We will be shifting to a three-year retention, removing the history of these reports beyond that time period, which will free up space within the system and help alleviate latency issues that come along with increased storage amounts.
We are communicating in advance of this change so that you may download any historical reports you’d like to save for your records.
If you have any questions on this retention update, please reach out to ESI Commissions at 800-344-7437.
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Save the Date for AssetMark: Impact Assets – Donor Advised Funds
Tuesday, September 28 at 1:00 pm ET
The ImpactAssets Donor Advised Fund with AssetMark is an innovative donor advised fund that empowers your clients to help maximize their social and environmental impact by aligning impact investments with their philanthropic goals. Please join us to learn about this valuable and sought after solution for your clients’ charitable giving goals.
Presented by Kris Morrison, Engagement Officer at Impact Assets
Click here to register.
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Important Reminder: Brokerage Account Paper Statement Fee will be Reflected on 9/30/21 Account Statements
In the 3rd quarter of 2021, National Financial Services, LLC. (NFS) will begin assessing a quarterly surcharge for the physical delivery of client trade confirmation and account statements. The new fee was originally communicated in FN 2020-30 in August of 2020.
The fee will be passed along to customers who continue to receive paper documents via regular mail. The total quarterly fee will be $5.00 per account, per quarter ($20.00 per year) and will be assessed to NFS brokerage accounts.
Clients can avoid these fees and speed up delivery of documents by subscribing to eDelivery on the Wealthscape Investor website.
FAQs
Q: When will the fee be assessed?
A: The paper surcharge fee goes into effect in the third quarter. The first fee will be reflected on the September 30th account statement. Clients will need to sign up for electronic delivery by approximately September 15th to avoid the fee.
Q: Can I absorb this fee for my client?
A: NFS has not developed a solution to accommodate subsidies of the paper statement fee. With no automated solution available to process the fee reversals and subsequent charges, ESI will not offer the ability for representatives to absorb the fee for certain client accounts. NFS is working on an automated solution for possible rollout in 2022.
Q: Are there exceptions to the fee, for example elderly clients?
A: Due to the high costs of paper delivery, there will be no exceptions to the paper statement surcharge for various populations of clients by age, account value, etc. Customers can receive paper account documents if they do not feel comfortable accessing their account online, but the $5.00 quarterly fee will be applied to their account.
Q: What happens if my client accounts do not have enough cash to cover these charges?
A: For non-retirement accounts, the fee will be applied and if there is insufficient cash, the account will be placed into a debit balance. Periodically, ESI operations reviews these accounts and places trades to clear debit balances. If ESI home office must place a trade for one of your client accounts, the $25.00 rep-assisted fee may apply.
For retirement accounts, NFS cannot place IRA’s into debit balances. During our annual IRA fee cycle, we will trade accounts with no cash to make funds available for recurring fees. See question below for additional information.
Q: So, you are going to place a trade every quarter to clear the charges?
A: In an effort to reduce the ongoing transaction charge exposure in placing a trade every quarter to cover the fee, we are in the process of modifying our customer agreement. Once the changes take place, if we are required to trade an account to cover a debit balance, we will raise no less than $200.00. We reserve the right to close any account that has a balance of less than $200.00.
Q: How is this being communicated to my clients?
A: Clients received an updated Brokerage Account Fee Schedule with their March account statement. This communication was outlined in FN 2021-10. The schedule incorporated the new $5.00 quarterly fee. Additionally, account statements from May-October will contain a statement message communicating the new charge and instructions for enrolling for eDelivery to avoid it.
Q: How can I review my accounts that are not currently enrolled?
A: A Wealthscape Report titled “ESI E-Delivery Enrollment Report” was created to assist in you in identifying accounts that are not currently enrolled. Additionally, the report has a column that displays the current core cash balance for each client account. Accounts that have little, or no cash available should be identified and those customers should be contacted to raise cash in advance of the 9/30 assessment date.
Q: Are other Broker-Dealers passing these fees to customers?
A: Yes. The majority of NFS correspondents are handling the paper statement fee similarly. Other large clearing firms in the industry have offered this capability for a number of years.
Q: What resources are available for my client to enroll in eDelivery?
A: Our public website contains the link to myOnline Brokerage Central. This NFS page contains numerous resources to assist your clients will logging in, enrolling, and managing document delivery preferences. The site also contains other resources such as guided tours, info on the Wealthscape Investor Mobile app, and more. You can also generate a “Click-to-Agree” email so that your client can enroll with the click of a button. To generate the email, please see the Document Delivery Instructions page under the service tab in Wealthscape.
If you haven’t already, please be proactive in reaching out to your clients to promote the benefits of eDelivery and discussing the need to maintain cash in their accounts to pay the fees. Please contact the Brokerage or Advisory service desk at 1-800-344-7437 with any questions on the upcoming fee cycle.
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Dept. of Labor (DOL) Info Session Webinars! Sign up TODAY!
DOL Update for ESI Registered Representatives
Hosted by DOL Strategy Team
Interested in learning more about potential impact points of the new DOL regulations and the progress ESI has made in addressing them? Join us for a webinar regarding the new DOL regulations on Friday, September 24 or Thursday, September 30.
To register for either session, click on the appropriate link below.
Friday, September 24, 2021
11:00am ET
Register here – https://nationallife.zoom.us/meeting/register/tJArdOCoqz0sGNaM9rpcGufvJ32-a03MKKev
Thursday, September 30, 2021
4:00pm ET
Register here – https://nationallife.zoom.us/meeting/register/tJEud-qsrTovEtVmNCNdOag5PFsqPktyX50I
After registering, you will receive a confirmation email with instructions for joining the session.
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Impact to Rollovers and PTE 2020-02 Under Upcoming Dept. of Labor (DOL) Changes
Summary
Recently, the Department of Labor (DOL) provided new guidance concerning who it considers to be a “fiduciary” under the Employee Income Retirement Security Act of 1974 (ERISA). This has created fundamental changes to the regulations that apply to the advice you provide to most qualified accounts, with the most profound impact on IRA Rollover transactions. Simultaneously, the DOL created new rules that will need to be followed to receive compensation in connection much of the advice that you provide regarding qualified funds.
Enforcement of these new rules will begin on December 20, 2021. This is the first of a series of communications between now and the enforcement date in which ESI will convey its revised policies, procedures, and forms designed to comply with the rule.
Background
Under ERISA, an individual or entity acts as a fiduciary with respect to many retirement accounts if they provide investment advice for compensation. Applying a five-part test, investment advice is provided, and you will be deemed to be a fiduciary, if you:
- Render advice as to the value of securities or other property, or made recommendations as to the advisability of investing in, purchasing, or selling securities or other property;
- Provide such advice on a regular basis;
- Provide such advice pursuant to a mutual agreement, arrangement, or understanding with the plan, plan fiduciary or IRA owner;
- The advice serves as a primary basis for investment decisions with respect to the plan or IRA assets; and
- The advice is individualized based on the particular needs of the plan or IRA.
Under previous DOL guidance, Registered Representatives (“RR”) and Investment Advisory Representatives (“IAR”) were deemed not to meet this five part test. However, the DOL withdrew this guidance, and now state that if a RR or IAR provides ongoing advice after the rollover, they are likely to be a fiduciary when the recommendation to do a rollover was made.
- If a fiduciary recommends a transaction that results in certain types of compensation, the transaction is deemed to be a “Prohibited Transaction.” Specifically, when earning compensation, a fiduciary may not deal with the income or assets of a plan or IRA in their own interest or for their own account; and
- A fiduciary may not receive payments from any third party dealing with the plan or IRA in connection with a transaction in the plan or IRA (i.e. compensation must come directly from the client or plan assets).
Practically, this presents the most challenges for commission-based business. For example, if your advice results in your receipt of more compensation than you would have otherwise earned (for example, being paid a 5% commission for an equity mutual fund instead of a lower commission for a fixed income fund), then you are said to deal with the assets of a plan or IRA for your own account. Additionally, when the commission is paid for by a mutual fund company or insurance company, the fee is not paid by your client, but instead a third-party.
Regarding rollover recommendations, there is almost always a prohibited transaction. If you recommend that your client stay in the qualified plan, you will earn no compensation. If you recommend a rollover, you will earn compensation when investments are made. Because your compensation will differ based on the advice you provide, a rollover recommendation almost always results in a “Prohibited Transaction” under ERISA.
What do I need to know?
There are three scenarios in which commissions can still be paid to you for rollover business:
1. Education
In connection with Regulation Best Interest, ESI created two paths for rollovers: 1) recommendations and 2) education. In conjunction with that, ESI published training material specifically designed to clarify the difference between making recommendations and providing education (click here to review the Reg BI training).
Under the DOL, and similar to Regulation Best Interest, you are not providing investment advice and you are not a fiduciary under ERISA if you do not provide a recommendation concerning an IRA rollover, but only educate an investor on their options. Accordingly, if you only provide education, as of December 20, 2021, IRA rollovers under ERISA will be very similar to IRA rollovers under Regulation Best Interest today.
The key element here is that you provide education to the investor and allow them to determine what course of action they want to take. So, what does education look like? Here are some examples:
- Discussing the options available to the investor, including (if applicable) leaving the assets in the current plan;
- Discussing the characteristics of IRAs and employer-sponsored plans;
- Discussing the costs and fees associated with available options;
- Discussing the availability of investment options in an employer-sponsored plan versus those of an IRA;
- Discussing the tax implications of leaving or moving assets;
- Discussing the differences between asset categories;
- Discussing general investment concepts such as risk versus returns, diversification, tax deferral, etc.
To assist you in educating clients on their rollover options, ESI provides a disclosure document that discusses a client’s options in a neutral fashion, so they can make their own well-informed decision.
2. PTE 84-24
An ERISA fiduciary can nevertheless engage in a Prohibited Transaction, if they comply with what is known as a “Prohibited Transaction Exemption,” or “PTE.”
One of these is PTE 84-24. It permits ERISA fiduciaries to receive payment of a commission for insurance products (including variable universal life, variable annuities, registered indexed linked annuities and fixed indexed annuities), provided they comply with certain requirements. Perhaps the most notable requirement is that you disclose, in writing, the compensation you will receive in connection with the transaction you are recommending. Additionally, the disclosure of compensation will need to be acknowledged and signed by your client and returned to ESI.
Under this exemption, fiduciaries recommending a rollover from an ERISA plan to an insurance product can receive a commission without violating the DOL’s prohibited transaction rules. It is rumored that the DOL may make future changes to 84-24, and its requirements may change in the future. However, in the meantime it is a fairly streamlined process that will be used when selling insurance products.
3. PTE 20-02
A new Prohibited Transaction Exemption, knowns as “PTE 20-02,” was created with the new DOL guidance. Under PTE 20-02, investment professionals can receive payments that would otherwise violate the prohibited transaction rules (e.g., commissions and trails) if they:
- Comply with the Impartial Conduct Standards. Generally, these are complied with if your recommendations are in a client’s best interest, if the compensation you earn is reasonable, and if you have not made any misleading statements about the investments you are recommending; and
- Provide various written disclosures to the investor. These disclosures will acknowledge the fiduciary status of both you and ESI, as well as describe the services we provide and the conflicts of interest that apply to us. Additionally, when a rollover recommendation is made, the reasons for the recommendation must be documented and provided to the investor prior to the transaction.
There are additional requirements that must be met to use PTE 20-02, but these are back office requirements being addressed by ESI, and usually should not impact you.
Much like Regulation Best Interest, being a fiduciary under ERISA, and its impartial conduct standards, will require that Representatives focus on any increase in costs as a result of an IRA rollover. ESI is developing new forms and work flows to assist you with this compliance.
How does this affect my business?
If your usual practice is to provide only education when engaging in IRA rollovers today, the changes to your process, effective December 20, 2021, will be minimal. Providing education and allowing the customer to make a decision will be the least disruptive means of assisting them with their rollover needs.
However, if you recommend IRA rollovers, the DOL will likely consider you to be a fiduciary. To receive compensation resulting from rollover recommendations, ESI will require the use of a PTE when you submit this business. Specifically:
- For insurance products sold through ESI (VAs, VUL, FIAs and RILAs), PTE 84-24 will be used;
- For all other products, PTE 20-02 will be used.
Additionally, the DOL will likely consider Representatives to be fiduciaries when providing ongoing advice to existing and new IRA investors, even if a rollover transaction does not occur. Thus, ongoing advice will require the use of PTEs, as well.
Questions
As ESI continues to amend forms, update procedures, and evaluate the changes necessary to meet the new requirements there will be additional communications. In the meantime, questions about this communication may be directed to Scott Solod (ssolod@nationallife.com) or Tom Longfellow (tlongfellow@nationallife.com) in ESI Compliance.
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Reminder: SAVA 5 is Sunsetting
National Life is sunsetting the Sentinel Advantage Variable Annuity (SAVA) in October.
- The last day to submit an application is October 1.
- Cases must be funded and issued by October 27.
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Maple Capital and Imagine Dragons say “It’s Time”
If you were away in August, you didn’t miss much. For the month, Treasury yields changed very little, with most points along the curve increasing by 3-9 basis points. Even though that may not seem like much of a change, low starting yields result in minor changes affecting bond prices more than usual. As a result, the Bloomberg Barclays Intermediate Aggregate Index turned in a total return of -0.16% for the month.
The “big” news in August was Fed Chair Powell’s speech after the central bank conclave in Jackson Hole, although the meeting was virtual this year due to the increasing caution over in-person gatherings. This annual meeting of the world’s top monetary policymakers always receives a good deal of attention but seldom follows through with anything terribly noteworthy. Powell’s comments confirmed the likelihood that a reduction in the Fed’s monthly asset purchases, the “tapering” we have mentioned before, could begin later this year. He also reiterated his expectation that inflation will prove transitory, explaining how multiple factors have conspired that have resulted in elevated inflation measures but that most should subside in coming months.
CLICK HERE TO READ MAPLE CAPITAL’S SEPTEMBER 2021 FIXED INCOME COMMENTARY IN FULL
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