As expected, the Securities and Exchange Commission’s exam division plans to ramp up oversight of brokers’ compliance with Regulation Best Interest starting in January, including recommendations on rollovers.
After assessing the results of its initial Reg BI exams and six months since the Reg BI compliance date kicked in, the SEC’s Division of Examinations will begin its “next phase” by conducting more focused exams.
As part of its plans, the division will examine whether broker-dealers have written policies and procedures and systems in place to achieve compliance with Reg BI, according to the SEC.
Division staff intends to expand the scope of exams in 2021 that focus on specific requirements of the Regulation. These include those that go beyond suitability standards and require BDs to have a reasonable basis to believe that recommendations are in retail clients’ best interests.
The exam division also plans to conduct enhanced transaction testing designed to examine whether BDs have implemented effectively their written policies and procedures.
“Failure to have adequate written policies and procedures and failure to have adequate supervisory and compliance oversight may indicate recurring issues in complying” with Reg BI, the SEC states.
IRA and tax specialist Ed Slott of Ed Slott & Co., told ThinkAdvisor in a previous interview that “Most advisors don’t have a process in place to cover what the SEC Reg BI requires as to giving the clients the pros and cons of each option — roll over to an IRA, keep the funds in the plan, take a lump-sum distribution, convert to a Roth IRA or any combination of these.”