SEC zeroes in on brokers with high rollover batting averages

Commission and Finra are concerned that brokers are steering investors into higher-fee accounts.
FEB 20, 2014
If you're a broker who has a knack for successfully transferring client assets from company retirement plans to individual retirement accounts, you may attract unwanted attention from the Securities and Exchange Commission. The SEC and the Financial Industry Regulatory Authority Inc. have made rollover reviews an examination priority for 2014. Both agencies are concerned that financial advisers may be encouraging rollovers to increase their own revenue rather than to help their clients enhance their nest eggs. Check out a video interview with Dale Brown, where the Financial Services Institute Inc. president and CEO offers his Finra wish list. “If someone has a really high batting percentage, that's when we want to dig in, perhaps talk to the clients and customers and figure out what conversations they're having, what are [clients] told, what really led [clients] to this decision,” Kevin Goodman, national associate director of the SEC broker-dealer examination program, told an audience at the FSI's OneVoice Broker-Dealer Conference in Washington on Tuesday. Finra is reviewing the transparency, disclosure and assessment of client risk surrounding rollover decisions, according to Susan Axelrod, Finra's executive vice president for regulatory operations. “The rollover issue is the key moment in someone's financial lifecycle; it's the critical moment,” Ms. Axelrod said at the conference. “So, it's appropriate for us to focus attention on it.” She said that there's not an urgent problem with rollovers, but Finra is trying to “get a handle on how the industry is monitoring this activity.” The topic has drawn the attention not only of the SEC and Finra but also the Labor Department, which is likely to address rollovers when it re-proposes its fiduciary-duty rule in August. “This area is getting more attention than before, and I think that's quite positive,” Ms. Axelrod said. Dually registered financial advisers who can operate as investment advisers or brokers are another exam priority for the SEC. When they wear their investment adviser hat, they must provide advice that's in a client's best interest. When they act as brokers, they meet a less stringent suitability standard governing sales of investment products. The SEC is delving into how advisory firms make the decision to put clients into advisory accounts or brokerage accounts. The agency will assess the level of trading in the accounts and the amount of investment advice provided, among other factors. “What we're really looking for are the outliers, which might be firms that are consistently guiding people to the wrong space in terms of what's in their best interest,” Mr. Goodman said. The SEC also is studying how firms decide whether to practice as investment advisers or brokers. Mr. Goodman said that fiduciary duty is a high bar, but that broker regulation is more detailed and directive. “I have a feeling that we're going to find there are some cases where the fiduciary duty scares firms off, but there are probably just as many cases where the prescriptive nature of broker-dealer rules scares people off,” Mr. Goodman said. “We want to understand where the bright lines are.”

Latest News

Summit Financial adds four RIAs, nets $1.2B in new assets
Summit Financial adds four RIAs, nets $1.2B in new assets

The quartet of deals across New York, Florida, Ohio, and New Mexico reinforces the fast-growing integrator's leading position in the independent space.

Advisor moves: Raymond James welcomes UBS, Wells Fargo teams in bicoastal moves
Advisor moves: Raymond James welcomes UBS, Wells Fargo teams in bicoastal moves

UBS and Wells Fargo have made their own additions in the Northeast, including a Massachusetts duo defecting from Commonwealth.

Goldman Sachs brings private credit to defined contribution plans
Goldman Sachs brings private credit to defined contribution plans

Goldman Sachs' new private credit fund aims to bring alternatives to 401(k) plans, joining a wave of asset managers targeting the DC market.

Could this be your year to make the Hot List?
Could this be your year to make the Hot List?

Don't miss your chance to be honored among the industry's best

RIA M&A activity surges to second-quarter record
RIA M&A activity surges to second-quarter record

With 102 transactions logged in the three-month period up to June, Echelon Partners is projecting a new banner year for dealmaking across the industry.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.