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Recent SEC Exams of RIAs Focusing on Client Retirement Accounts

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The Securities and Exchange Commission is making good on the exam priorities it pledged early in 2015.

One of those priorities was to take a closer look at how RIAs comply with the Advisers Act when it comes to overseeing their clients’ assets in 401(k) and IRA accounts.

The SEC’s Office of Compliance Inspections and Examinations (OCIE) began on-site examinations at the end of November 2015. 

Those registered investment advisors selected for this year’s exam sweeps are required to provide detailed information on advisors with retirement-specific titles or professional certifications. Advisors undergoing exams will have to turn over marketing material and sales scripts relating information on 401(k) distribution options for clients.

Also, advisors will have to prove to SEC examiners how they revealed the costs and potential conflicts of interest relating to clients’ retirement assets, including if or when a rollover of 401(k) assets to an IRA was recommended.

The SEC is also concerned with how thoroughly RIAs are breaking out the cost of specific investment options, including nuanced descriptions that go beyond an investment’s expense ratio to cover relevant information on revenue sharing, loads, commissions and any other charges.

Examiners are taking a close look at specialist 401(k) advisors’ business practices as well. Those practices will have to break out details on sponsor clients, including amount of plan assets advised.

All fees earned for those services will have to be divulged, including fees earned via revenue sharing agreements with investment managers. Advisor fund managers of qualified default investment alternatives (QDIA)are another area of the retirement industry under review. Among other things, the SEC wants to know how participants are being charged for their managed QDIA shares, and what is included in the enrollment disclosures for those investment alternatives.

In June, the OCIE launched what it’s calling a “multi-year Retirement-Targeted Reviews and Examinations Initiative,” or ReTIRE Initiative.

The effort comes as the SEC is under increased pressure to make good on the authority it was granted when Dodd Frank was passed in 2010, authorizing the creation of a uniform fiduciary standard for all investment advisors.

The Department of Labor has promised to finalize its proposed fiduciary rule, and has the strong backing of the Obama White House. Opponents of the DOL have called on the SEC to be the lead regulator in creating a uniform fiduciary standard.

And while SEC Chair Mary Jo White has publicly voiced her support for a fiduciary standard and formally initiated the process of establishing a new rule, she has also cautioned that a rulemaking effort will likely be years in the making.

Moreover, some industry watchers suggest the politically divisive nature of the SEC’s four commissioners, two of which would have to vote with Chair White to finalize an SEC fiduciary rule, could further delay rulemaking.


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