Amid the fast-approaching Reg BI and Form CRS compliance date, SEC Chairman Jay Clayton reminded stakeholders of the need for increased care when making 401(k) rollover and withdrawal recommendations.
“Recommendations to retail investors to roll-over or transfer assets from one type of account to another, or to take withdrawals from an account, should be approached with care,” Clayton advised in a June 15 statement. He added that firms should be “particularly attuned to their regulatory obligations” considering the additional flexibility Congress provided investors under the CARES Act to take withdrawals from certain accounts. 
The warning about rollover recommendations was part of a statement by Clayton reminding stakeholders that the Commission does plan to hold firm on its June 30, 2020, compliance date for Reg BI and Form CRS.
Reiterating his April statement that he believes the June 30 compliance date remains appropriate, Clayton noted that over the past year, the Commission has engaged extensively with broker-dealers, investment advisers, retail investors and other market participants, as well as FINRA and other regulatory partners, regarding the implementation of Reg BI and Form CRS.
“In April 2020, based on that engagement, I observed that firms—broker-dealers, investment advisers and ‘dual hatted’ personnel—had made considerable progress in (1) adjusting their business practices, (2) supplementing and modifying their policies and procedures and (3) otherwise aligning their operations and preparing for the requirements of Reg BI and the obligation to file and deliver Form CRS,” Clayton stated.
“In addition, our work across the Commission over the past several months has strengthened my view that the effects of the COVID-19 pandemic weigh substantially in favor of implementing the Reg BI and Form CRS requirements as soon as practicable,” Clayton further noted.
401(k) Rollovers and Withdrawals
As to the additional flexibility provided by the CARES Act allowing eligible participants to take early distributions without penalty, the SEC Chairman emphasizes that the Office of Investor Education and Advocacy noted in a recent investor alert that some promoters are recommending that investors take CARES Act withdrawals or otherwise roll-over retirement funds to invest in products they are soliciting.
“Firms should recognize that these recommendations are subject to Reg BI and ensure that their policies and procedures meet the requirements of Reg BI, the Advisers Act and Form CRS, as appropriate,” Clayton advised.
Increased Care
Additionally, the statement warns that the COVID-19 pandemic and various related actions have had many effects on markets and Main Street investors, resulting in significant changes in the current and future needs of many investors, as well as the risks they face. For example, it notes that Main Street investors may have greater needs for cash and liquidity as a result of a change in employment or other circumstances.
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“It is clear to me that some of the investments and strategies being marketed to Main Street investors are complex and risky, including certain of those that (1) are marketed as responsive to the effects of COVID-19, (2) provide significantly leveraged exposure (and risk) through the use of options, futures and other derivatives or through the use of margin and (3) have complex structures that may not be easily understood by Main Street investors,” Clayton states.
Clayton voices concern that some of these recommendations and investments may not be in the best interest of Main Street investors, including some marketed as COVID-19-driven that may be “simply fraudulent” as the Commission has charged in recent enforcement actions.
Clayton also advises that broker-dealers and investment advisers should review their operations to be sure they are making recommendations or providing investment advice to retail investors that is in those investors’ best interest.
And given the current conditions, he emphasizes that firms should also ensure that—to the extent they are included in a firm’s recommendation or advice to a retail investor—focus is being applied to complex or risky products, COVID-related investments and special purpose acquisition corporations (SPACs) and other structured investment vehicles.
Main Street Investor Website
To help Main Street investors better understand Form CRS and its benefits, the Commission has established a new website, including educational resources and tools to help investors research firms and financial professionals.
