SEC exam questions dive deeply into retirement-account advice

Through its queries to financial advisers, the regulator is asserting its presence in an area normally associated with the Labor Department

Dec 22, 2015 @ 1:56 pm

By Mark Schoeff Jr.

The Securities and Exchange Commission is diving deeply into the retirement-account advice that investment advisers and brokers are giving to their clients, asserting the agency's presence in an area normally associated with the Labor Department.

As part of its examination sweep, the SEC is sending to financial advisers a 13-page information request that includes 75 queries. The document focuses on the recommendations that advisers make to rollover funds from a 401(k) to an individual retirement account, fees they charge, conflicts of interest and supervision and compliance controls.

The document also devotes 25 queries to situations in which the registered adviser or broker serves as the adviser to a managed account qualified default investment alternative. An emphasis on QDIA usually comes from the DOL, which enforces the Employee Retirement Income Security Act.

“That's the first time I've seen the SEC formulate questions that smack of a DOL request,” said Jason Roberts, chief executive of the Pension Resource Institute.

The SEC, DOL and the Financial Industry Regulatory Authority Inc., the industry-funded broker-dealer regulator, have made the protection of retirement savers a priority over the last few years.

The DOL is moving toward finalization of a rule that would require financial advisers to act in the best interests of their clients in retirement accounts.

In June, the SEC announced its retirement-advice exam sweep. Now advisers are reporting that they are receiving the questionnaires, according to Mr. Roberts.

Critics of the DOL rule have said that the SEC should take the lead in regulating retail investment advice and that the DOL shouldn't create special rules for retirement accounts. The SEC is mulling its own fiduciary-duty rule but has not yet made a proposal, even though the Dodd-Frank financial-reform law gave it the authority to do so five years ago.

SEC Chairman Mary Jo White has steadfastly maintained that the agencies operate under different laws and that they can pursue their own advice rules.

The SEC retirement-advice sweep, though, is putting the agency's fingerprints on retirement-advice policy.

“The regulatory turf war is in full force,” Mr. Roberts said. “You can certainly see that they're trying to step up their oversight of this area and say that they have a handle on regulating it, and that it is not the vacuum that DOL has portrayed.”

An SEC spokesman was not immediately available for comment.

The SEC, which focused on conflicts of interest surrounding pensions for many years, wants to better understand how retirement investment products are being distributed. That puts an agency that enforces securities laws in the same space as DOL, according to one investment adviser.

“This is the primary example that ERISA lives at the intersection of distinct bodies of law,” said Kimberly Shaw Elliott, president of IFP Plan Advisors, the retirement division of Independent Financial Partners. “It's squarely in [the SEC's] jurisdiction and it sounds like they're asking the right questions.”

Mr. Roberts encourages investment advisers to be prepared for the inquiry related to retirement accounts by paying attention to special rules for them and “critically think about how they're serving those clients.”

“They need to take into account the unique risks associated with that line of business,” said Mr. Roberts, who also is a partner at the Retirement Law Group.

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