SEC exams target advisers’ retirement-saving guidance
Exams add scrutiny to an industry debating proposals that brokers act in client's best interests.
Securities regulators announced Monday a program to examine the retirement-planning guidance provided by financial advisers, placing new scrutiny on an industry already debating requirements that brokers act in the best interest of investors.
The Securities and Exchange Commission said it would conduct a string of examinations on broker-dealers and other financial advice firms as part of a multi-year initiative aimed at “higher-risk areas” of retail advice.
The agency said those areas include advisory firms’ “sales, investment and oversight processes, with particular emphasis on select areas where retail investors saving for retirement may be harmed.”
The new initiative comes amid a hotly disputed proposal, supported by the Obama administration, that would require brokers act in the best interest of their clients when serving the popular retirement plans used by employees.
While some advocates welcomed that proposal by the Department of Labor as an approach to rein in incentives for brokers to steer investors into costly and underperforming investments, top industry officials said the rules would force broker-dealers to adjust how they compensate financial advisers or face greater legal liability.
The SEC could target a potentially broad set of firms and practices as part of its new program to examine retirement planning guidance, which is formally called the Retirement-Targeted Industry Reviews and Examinations Initiative.
The new initiative includes examinations that will be conducted by the agency’s Office of Compliance Inspections and Examinations. That division is responsible for over 10,000 advisory firms and 4,500 broker-dealers.
In its news release Monday, the agency said it could look at whether compensation to advisers creates conflicts of interest, how those conflicts are managed by firms, whether advisers’ marketing materials are accurate, and check if advisers’ due-diligence on investments is adequate. They said they would also look at specific recommendations advisers make to clients, for instance the often-profitable decision by brokers to recommend selling assets held in an employer’s retirement plan and rolling those assets over into an individual retirement account.
“They’re looking at the big indie firms, the big dual registrants out there that have a large market with the retail investor, and right now most of those investors are looking for retirement savings,” said Amy Lynch, president and founder of FrontLine Compliance, a Rockville, Md.-based consultancy to advisory firms. “Those would be the firms they’d be trying to visit and see how they supervise the activity of their reps.”
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