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SEC Cracking Down on Adviser’s Retirement Advice

Author: Dan Brecher|July 1, 2015

The Securities and Exchange Commission (SEC) recently announced a new compliance initiative that will target the retirement advice doled out by brokers and other financial advisers.

SEC Cracking Down on Adviser’s Retirement Advice

The Securities and Exchange Commission (SEC) recently announced a new compliance initiative that will target the retirement advice doled out by brokers and other financial advisers.

Dubbed the “Retirement-Targeted Industry Reviews and Examinations Initiative,” the SEC’s targeted examinations of registered investment advisers and broker-dealers will focus on “certain higher-risk areas of registrants’ sales, investment, and oversight processes, with particular emphasis on select areas where retail investors saving for retirement may be harmed.”

The new initiative comes in the wake of the Department of Labor’s (DOL) proposed (and controversial) fiduciary rule that would impose the “best interests of the client” standard on brokers. While supporters of a uniform fiduciary standard for brokers and advisers maintain that the proposed rules will help prevent conflicts of interest, critics argue that the increased liability risk and costs would be unduly burdensome for brokers.

While the SEC has yet to propose its own fiduciary rule, conflicts of interest are of top enforcement priority. According to the SEC’s Risk Alert, the agency is focusing on retirement-based savings “in recognition of the complex and evolving set of factors that retail investors face when making such investment decisions.”

SEC examination focus areas:

 

  • Reasonable basis for recommendations: Examiners will assess the actions of registrants and their representatives for consistency with these obligations when: (i) selecting the type of account; (ii) performing due diligence on investment options; (iii) making initial investment recommendations; and (iv) providing on-going account management.

 

  • Conflicts of interest: Examiners will review registrants’ sales and account selection practices in light of the fees charged, the services provided to investors and the expenses of such services to evaluate, to the extent applicable and required, whether: (i) compliance programs identify and address risks associated with the conflicts of interest and (ii) material conflicts of interest, such as compensation structures that may incentivize representatives to make certain recommendations, are disclosed or otherwise addressed.

 

  • Supervision and compliance controls: Examiners will review registrants’ controls, oversight, and supervisory policies and procedures, including registrants with operations in multiple and/or distant branch offices and representatives with outside business activities.

 

  • Marketing and disclosure: Examiners will review registrants’ brochures, sales and marketing materials, and disclosures to retail investors to, among other things, validate, to the extent applicable and required, that: (i) the content of the materials and representations of representatives are true and accurate and do not omit material information where there is a duty to disclose; (ii) disclosures regarding the fees are complete and accurate; and (iii) credentials or other endorsements are valid and meet any stipulated standards.

 

As with all of the SEC’s compliance initiatives, this is the agency’s polite way of saying you’ve been warned. Firms under the SEC’s purview are encouraged to review their practices, policies, and procedures in these areas and make any necessary compliance improvements as soon as possible.

SEC Cracking Down on Adviser’s Retirement Advice

Author: Dan Brecher

Dubbed the “Retirement-Targeted Industry Reviews and Examinations Initiative,” the SEC’s targeted examinations of registered investment advisers and broker-dealers will focus on “certain higher-risk areas of registrants’ sales, investment, and oversight processes, with particular emphasis on select areas where retail investors saving for retirement may be harmed.”

The new initiative comes in the wake of the Department of Labor’s (DOL) proposed (and controversial) fiduciary rule that would impose the “best interests of the client” standard on brokers. While supporters of a uniform fiduciary standard for brokers and advisers maintain that the proposed rules will help prevent conflicts of interest, critics argue that the increased liability risk and costs would be unduly burdensome for brokers.

While the SEC has yet to propose its own fiduciary rule, conflicts of interest are of top enforcement priority. According to the SEC’s Risk Alert, the agency is focusing on retirement-based savings “in recognition of the complex and evolving set of factors that retail investors face when making such investment decisions.”

SEC examination focus areas:

 

  • Reasonable basis for recommendations: Examiners will assess the actions of registrants and their representatives for consistency with these obligations when: (i) selecting the type of account; (ii) performing due diligence on investment options; (iii) making initial investment recommendations; and (iv) providing on-going account management.

 

  • Conflicts of interest: Examiners will review registrants’ sales and account selection practices in light of the fees charged, the services provided to investors and the expenses of such services to evaluate, to the extent applicable and required, whether: (i) compliance programs identify and address risks associated with the conflicts of interest and (ii) material conflicts of interest, such as compensation structures that may incentivize representatives to make certain recommendations, are disclosed or otherwise addressed.

 

  • Supervision and compliance controls: Examiners will review registrants’ controls, oversight, and supervisory policies and procedures, including registrants with operations in multiple and/or distant branch offices and representatives with outside business activities.

 

  • Marketing and disclosure: Examiners will review registrants’ brochures, sales and marketing materials, and disclosures to retail investors to, among other things, validate, to the extent applicable and required, that: (i) the content of the materials and representations of representatives are true and accurate and do not omit material information where there is a duty to disclose; (ii) disclosures regarding the fees are complete and accurate; and (iii) credentials or other endorsements are valid and meet any stipulated standards.

 

As with all of the SEC’s compliance initiatives, this is the agency’s polite way of saying you’ve been warned. Firms under the SEC’s purview are encouraged to review their practices, policies, and procedures in these areas and make any necessary compliance improvements as soon as possible.

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