Providing Compliant Services

Posted on August 19, 2014, by Fred Reish in Broker-Dealers, DOL Activity, Registered Investment Advisers, RIA. Comments Off on Providing Compliant Services

The increasing regulation of 401(k) distributions and rollovers to IRAs continues to be a subject of great interest to my clients . . . and a considerable amount of work for me. One of the benefits of concentrated work in that area has been an enhanced appreciation of the difficulty of broker-dealers, provider call centers, and RIAs in providing compliant services . . . from a practical perspective.

For example, viewed academically, it is possible to put together a compliant rollover program under FINRA’s guidance in Regulatory Notice 13-45. At the least, that would involve written materials and discussions about the seven factors listed in the guidance. The written materials would be provided to participants to both educate them and to support compliance and supervision. The conversations would be structured to provide a reasonable basis for developing a suitable recommendation, based on the individual needs and circumstances of the participant.

On a practical level, it is feasible for a financial adviser or an investment adviser to engage in that process . . . for a participant with a large account balance. However, that is only a small part of the real world of 401(k) participants. Many of the conversations are with participants with small account balances and, for a provider’s call center, are of limited duration. As a result, the compliance procedures and “scripts” for participants with small account balances are often more difficult to develop than for the individualized treatment that can be financially justified for wealthier participants.

Nonetheless, the regulators—FINRA, the SEC and the DOL—now expect broker-dealers and RIAs to have compliant procedures for “capturing” IRA rollovers. Based on my experience, this is not an easy job. I recommend that, at the least, your procedures incorporate unbiased and relatively thorough educational materials that are given to all participants who are eligible for distributions and a process that solicits the most important information about the needs and circumstances of the participants. Without that kind of approach (or something similar to it), it will be difficult to formulate a suitable or prudent distribution and rollover recommendation.

The FINRA guidance, and the SEC and FINRA 2014 Examination Priorities List, are posted under the “external resources” page on my blog at


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