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Prohibited transaction re: Trustee of mutual fund


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I really hate trying to wade through the prohibited transaction issues. Just so you know.

Not looking for chapter and verse here, just whether I'm headed in the right direction.

Is a trustee/director of a mutual fund allowed to purchase that fund using assets of his self directed 401(k) account?

I can't decide if it's really a retirement plan potential prohibited transaction or an issue that would cause a problem for the director regarding his independence on the board.

Thanks.

William C. Presson, ERPA, QPA, QKA
bill.presson@gmail.com
C 205.994.4070

 

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Mr. Presson, if your query is about an "outside" director - one who is not associated with the fund's manager, and who otherwise qualifies as independent under the Investment Company Act of 1940 and other law, such an individual's investment only for herself in those open-end registered investment company shares usually does not involve a prohibited transaction that needs an exemption.

If such an open-end RIC fund's manager, as the employer of the manager's employees, wants to include a "house-brand" fund as a participant-directed investment alternative of that employer's retirement plan for only the manager's employees, class exemption 77-3, if all of its conditions are met, exempts a buy or a sell of the fund's shares from ERISA section 406.

About independence, the typical desire is for an "outside" director to be independent of each fund's manager; but ordinarily there is no need (or desire) for a director to be independent of the fund itself.

PTCE 77-3.pdf

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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