Is the SEC Ramping up Rollover Scrutiny?

Much of the preparation for the Labor Department’s fiduciary regulation has involved a focus on rollover advice – but it now looks like the SEC is gearing up a larger focus as well.

A new blog post from noted ERISA attorney Fred Reish reminds that the SEC’s Office of Compliance Inspections and Examinations (OCIE) issued a National Exam Program Risk Alert concerning examinations about services offered by RIAs and broker-dealers to investors with retirement accounts, notably a “Reasonable Basis for Recommendations.”

One of those involved “selecting the type of account,” and Reish points out that the SEC included a footnote that referenced FINRA guidance on rollovers to IRAs, a footnote that included as an example a situation where “a firm may recommend that an investor sell his plan assets and roll over the cash proceeds into an IRA. Recommendations to sell securities in the plan or to purchase securities for a newly-opened IRA are subject to Rule 2111.”

Reish explains that combining the language in the Risk Alert with the language in the footnote, the OCIE is saying that recommendations to participants to take distributions from plans (that is, from one type of account), and rolling over to an IRA (that is, to another type of account) will be scrutinized. According to Reish, it also suggests that the OCIE favorably views FINRA’s analysis in Regulatory Analysis 13-45.

A word to the wise from Reish: Broker-dealers and RIAs should review their procedures and policies, as well as their supervisory programs, to ensure that their advisers are complying with the expectations of the OCIE and with the provisions of Regulatory Notice 13-45.

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