3 Areas Regulators Are Targeting Now, According to Lawyers

The focus: compensation and sales practices of third-party administrators of 403(b) plans as well as the practices of their affiliated advisors and broker-dealers, Avakian said. And digging into “how administrators and their affiliates choose and recommend investment options, how they are compensated.”

Other sweep documents request info “on compensation that the administrators received on referring specific investments, also gifts and any other types of non-monetary compensation received from administrators and firms that work in the space,” Lundy said.

While the 403(b) sweep won’t be “as coordinated” as the share class one, expect more to come, Lundy warned.

Registered investment advisors have been getting sweep letters from the SEC, and more will come, Lundy predicts. “More specifically, I believe that SEC enforcement will use the information that they obtain from the administrators in a similar way to how they leveraged information and data from clearing firms for the SCSD Initiative and certain follow-up efforts, including the revenue sharing sweep,” he said.

As for Reg BI, while the Financial Industry Regulatory Authority has stated that second-half 2020 BD compliance exams will not be “gotcha moments,” Sandra Dawn Grannum, partner in Faegre Drinker’s Litigation Group, said during the webcast that the regulator will expect “good-faith attempts” to comply with all four parts — care, disclosures, conflicts of interest and compliance.

In other words: BDs must show they’ve taken measures to ensure actions are in the best interest of clients (care); disclosed situations where a conflict may arise; and “possibly even” mitigated conflicts. If a BD doesn’t “have written supervisory procedures (compliance) in place to ensure your measures are being carried out, … you have failed to comply with Reg BI.”

As it stands now: There are “a lot of unanswered questions” about the new PEPs, or pooled employee plans, formerly known as open MEPs, or multiple employer plans, under the Secure Act, said Brad Campbell, a partner at Faegre Drinker in Washington. “We will probably see some PEPs coming to market very quickly.”

The Secure Act also requires annual lifetime income projections. The Labor Department has 12 months to come up with an interim final rule, added Campbell, the former former head of Labor’s Employee Benefits Security Administration. “That will be a challenge for Labor, [as] that’s a technically difficult regulation to write.”

Such regs “face regulatory agenda priorities as to what the Trump administration wants to finish,” Campbell continued. A change in administrations could throw a wrench into such regulatory priorities. “To the extent we’re waiting on regulations from Treasury, Labor or anywhere else, there’s a lot of uncertainty built into that, too.”

— Related on ThinkAdvisor:

• SEC’s Avakian Details Next 12b-1 Fee Crackdown
• Scalia Is Still in the DOL Fiduciary Rule Game