What You Need to Know
- BDs and advisors are to use caution when recommending rollovers to retail clients so as not to run afoul of Reg BI, fiduciary duty
- Brokers and advisors must always consider costs when making recommendations, Hauptman said.
- Dually registered advisors must disclose their capacity under both Reg BI and the IA fiduciary standard when making recommendations.
The Securities and Exchange Commission is warning broker-dealers and advisors to use caution when recommending rollovers out of a retirement plan to retail clients so as not to run afoul of their obligations under Regulation Best Interest and the Advisers Act fiduciary standard.
In a just-released guidance bulletin in Q&A form, the SEC reiterates the standards of conduct for broker-dealers and advisors when they are making account recommendations to retail investors.
“The guidance makes clear that a careful consideration of a rollover recommendation includes a consideration of leaving the assets in the plan,” Micah Hauptman, director of investor protection for the Consumer Federation of America, told ThinkAdvisor in an email.
The guidance “also suggests that it’d be very risky for firms and professionals to recommend rollovers without first obtaining plan information that allows a careful assessment of the costs and benefits of staying in the plan versus rolling out of the plan,” Hauptman said.
The SEC states that “when making a rollover recommendation to a retail investor, you must have a reasonable basis to believe both that the rollover itself and that the account being recommended are in the retail investor’s best interest.”
Specific factors are also “potentially relevant to rollovers that [BDs and advisors] should generally consider when making a rollover recommendation to a retail investor,” the SEC states.
“These factors include, without limitation, costs; level of services available; features of the existing account, including costs; available investment options; ability to take penalty-free withdrawals; application of required minimum distributions; protection from creditors and legal judgments; and holdings of employer stock,” according to the agency.