Roth IRA 401(k)

Broker-dealers of all sizes began taking significant steps to modify and develop new policies and procedures for IRA rollovers to comply with the Department of Labor’s fiduciary rule before the rule was vacated by the 5th Circuit Court of Appeals, according to a just-released survey by the North American Securities Administrators Association.

The report, conducted by NASAA’s Broker-Dealer Section throughout May 2017, was based on a nationwide survey of 96 large, midsize and small broker-dealer firms to determine the standard of care they were using before Labor’s rule as well as steps firms were taking in the run-up to the rule’s implementation.

The survey polled BDs on the standard of care they had in place for IRA rollovers between April 1, 2017 and May 29, 2017 — prior to the DOL rule’s best-interest standard being legally required.

None of the broker-dealers surveyed were providing a standard of care other than “suitability” to IRA rollovers prior to June 9, 2017, when the DOL’s rule took effect.

“The report’s findings spotlight the real and tangible good that came from the Department of Labor’s fiduciary rule,” said Joseph Borg, NASAA president and Alabama Securities Commission director, in a statement.

NASAA cites Internal Revenue Service estimates that in 2014, approximately $435 billion of retirement funds were rolled from employer-sponsored retirement plans into IRAs by nearly 5 million taxpayers.

“From a regulatory perspective, there is absolutely no merit to the concept that rollover dollars should be treated differently under the law than they were as a part of an employer-sponsored retirement plan,” Borg said.

The NASAA Project Group, as part of the survey, also requested copies of firms’ written policies and procedures; copies of exception reports and/or trade and transaction reviews; memorandums, guidance and correspondence; and advertising or marketing materials in use.

The survey asked BDs for examples of steps they planned to take after June 9, 2017 in terms of analyzing, reviewing with investors, and documenting with detail the key risks, advantages and disadvantages of rolling over retirement funds into individual IRAs.

One broker-dealer, for instance, submitted materials it planned to use with brokerage clients after the Labor rule’s June 9 implementation date, which included a three-page checklist of all features of an account rollover comparing and contrasting the non-investment features of an employer-sponsored retirement program account with an IRA account, the survey states.

“The investor protection gains made as a result of the Department of Labor’s fiduciary rule should be preserved in any subsequent rulemaking by the SEC or other agencies,” Borg said. “It would be a shame to let the pendulum swing back.”