More On Legal & Compliancefrom The Advisor's Professional Library
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
Two top BD regulators explained Tuesday why qualified plan rollovers and sales to seniors will face heightened scrutiny this year.
“The goal is to see whether there is an abuse of rollovers,” Kevin Goodman, national associate director of the BD exam program for the Securites and Exchange Commission's Office of Compliance Inspections and Examinations, told attendees at the FSI OneVoice conference.
“If you look at the numbers there are burgeoning assets” in rollovers, and there’s potential for advisors and brokers to unnecessarily steer clients into one for their own financial gain, Goodman said. “There’s also the DOL analysis of how the fiduciary standard may apply in this context. We’ll be looking at this during a lot of exams,” particularly where the agency notices “someone that is highly successful at rollovers; we’ll take special interest and dig in and see what conversations clients are having” with these advisors and brokers.
Both the SEC and the Financial Industry Regulatory Authority included rollovers and sales to seniors in their top exam priority list this year.
Cogent just reported that one in 10 (9%) of investors with at least $100,000 in investable assets are likely to roll over a total estimated $280 billion into IRAs this year.
Regular exams conducted by FINRA this year will also include rollovers, said Susan Axelrod, executive vice president of regulatory operations at FINRA. “We didn’t do a sweep on [rollovers], but the latter part of 2013 we started [including rollovers] in the regular cycle of exams and we will continue to do that this year,” she said.
As for sales to seniors, Goodman said that after the SEC completed its sweep exam of sales to seniors last year “we didn’t find rampant abuse, only isolated” cases. However, he said that the SEC will place a “special emphasis on sales to seniors” during exams, looking at how firms train reps and advisors on senior issues, their sales policies, and which products are being sold to seniors.
Patty Struck, administrator of the Securities Division of Wisconsin’s Division of Financial Institutions, noted that the states were first to recognize the trend toward senior abuse about five years ago with free lunch seminars. Struck noted, however, that state regulators “don’t look specifically at an age number” when targeting senior abuse. “If we get a complaint from an investor, we don’t ask investors how old they are.”
Goodman said the SEC also “wouldn’t throw out an age cutoff” to advisors. “Our examiners are trained on looking at the specifics.” For instance, he said that a 92-year-old investor without diminished capacity could request a more aggressive investment and that may be suitable for them. “We are training our examiners to look at these variables, not just someone’s age or what type of product is being sold.”
Added Axelrod, “It is important that firms have adopted policies and procedures for seniors.”
FINRA does look specifically at financial abuse of investors 65 and older.
“It’s also really important to talk about diminished capacity issues,” she said. “Diminished capacity is a tricky issue.”
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