Capturing Rollovers: A Changing Environment

Posted on March 5, 2014, by Fred Reish in DOL Activity, fiduciary, prohibited transaction, Registered Investment Advisers, RIA. Comments Off on Capturing Rollovers: A Changing Environment

Recent developments suggest that FINRA, the SEC and the DOL are working together…or, perhaps, have independently reached the same conclusions.

In the past few months, FINRA has discussed rollover IRAs in five publications. The most important of those being Regulatory Notice 13-45, which creates a fiduciary-like process for recommendations about distributions and IRA rollovers. (By the way, I believe FINRA’s Investor Alert on rollovers is helpful and should be given to prospective rollover customers.) Then, to put an exclamation point on that guidance, both FINRA and the SEC listed rollovers to IRAs as one of its 2014 Examination Priorities for broker-dealers.

Finally, it is commonly expected that the DOL will issue its proposed regulation on the definition later this year…and that the proposal will expand its prior guidance on “capturing” rollovers. Fiduciary status alone increases the scope of the DOL’s jurisdiction and implicates it’s prior guidance (see Advisory Opinion 2005-23A). As a result, a broader definition of fiduciary advice will subject more advisers and providers to that guidance. In addition, it is possible that the Department will try to label any recommendation to take distribution as fiduciary advice (by saying, e.g., that a recommendation to take a distribution is inherently also a recommendation to liquidate a participant’s 401(k) investments – similar to what FINRA has done).

To make this even more “interesting,” we are seeing SEC examinations of RIAs where the SEC is finding ERISA prohibited transactions and asserting compliance violations by RIAs. The question is, will that theme carry over into IRA rollovers?

These changes impact broker-dealers, RIAs and their representatives. Less obviously, they also impact the rollover services of recordkeepers.

Bottom line… the rules are changing. Much more attention must be given to practices and disclosures in the distribution and rollover process.

For those of you who are interested in following me on Twitter, I can be found @fredreish, or copy and paste this URL into your browser:


Recent Insights

Best Interest and Best Practices #9

What Does “Best Interest” Mean?

This is the 9th of a new series of articles titled “The Bests.” The series focuses on Best Interest...

Best Interest and Best Practices #8

Fiduciary Training: The Need for Basics

This is the 8TH of a new series of articles titled “The Bests.” The series focuses on Best...

Best Interest and Best Practices #7

SEC Best Interests . . . When? And What About the DOL

This is the 7th of a new series of articles titled “The Bests.”...