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August 14, 2018 at 11:09 AM
The Securities and Exchange Commission’s proposed Regulation Best Interest for brokers must be revised to ensure that rollover recommendations are in an investor’s best interest, according to Morningstar.
In the fund-rating group’s comment letter to the SEC on its proposed advice standard package, Aron Szapiro, director of Policy Research for Morningstar, told the agency that Reg BI needs to identify rollovers “as specifically requiring a prudent process and documentation to ensure they are in retirement investors’ best interests.”
Rollovers, Szapiro wrote, particularly from retirement accounts covered by the Employee Retirement Income Security Act of 1974, “require additional scrutiny because most financial professionals have an incentive to recommend that clients roll over their assets.”
(Related: O’ No! Ken Fisher Tells SEC to Ban Use of ‘Advisor)
Further, “participants in ERISA-covered retirement accounts often enjoy institutional pricing for investments and high levels of protections because of ERISA’s strict fiduciary standards,” he wrote.
While the preamble to the SEC’s advice standard’s package “makes it clear that rollover recommendations are covered by the rule, the final regulation should specifically identify broker/dealers’ responsibilities when recommending a rollover,” Szapiro stated.
The Morningstar comment letter notes that flows into mutual funds paying unusually high excess loads declined after the Labor Department proposed its fiduciary rule in 2015 – a shift that Szapiro states was “statistically significant.”
