Regulatory Harmony in Rollover Recommendations?

The Labor Department isn’t the only regulator hoping to protect participants from questionable rollover advice.

A recent blog post by Fred Reish reminds that FINRA, which oversees broker-dealers, addressed rollover recommendations to participants in Regulatory Notice 13-45.

In essence, Reish notes that FINRA concludes that a recommendation to take a rollover includes a recommendation to liquidate the investments in a participant’s 401(k) account … and that the liquidation recommendation is a “recommended securities transaction” and “thus is subject to Rule 2111.”

He then notes that FINRA says that “If Rule 2111 is triggered, a registered representative must have a reasonable basis to believe that the recommendation is suitable for the customer, based on information about the options obtained through reasonable diligence, and taking into account factors such as tax implications, legal ramifications, and differences in services, fees and expenses between the retirement savings alternatives.”

Reish notes that earlier in the Notice FINRA describes the need for an adviser to compare investments, services and expenses in the plan and the recommended IRA before making a recommendation – language that he says is “strikingly similar to the Best Interest Contract Exemption (BICE) requirement that fiduciary advisers must do a comparative analysis of the investments, services and expenses in the Plan and the proposed IRA before recommending a rollover.”

All of which, Reish concludes suggests that “regulators appear to be harmonizing around the type of analysis and investigation required to make a suitable or prudent recommendation.”

Add Your Comments

One Comment

  1. Posted March 9, 2017 at 4:43 pm | Permalink

    What liability if any will an Plan administrator have for authorizing a distribution? Will this require a plan administrator or 3(16)fiduciary to involve themselves in the process, say to make an attempt to validate that a comparison was provided to a participant before approving a distribution?

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