January 25, 2022

Volume XII, Number 25


January 24, 2022

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SEC Examination Priorities for 2015

The SEC has now released its 2015 Examination Priorities, and it continues the trend of focusing on rollovers. This email discusses the SEC concerns in the context of retirement plans and rollover IRAs.

For context, keep in mind that the SEC has jurisdiction over RIAs, broker-dealers and custodians, while FINRA regulates the activities of broker-dealers.

Part II of the SEC release is labeled “Protecting Retail Investors and Investors Saving for Retirement.” This alone says a lot. In the introduction to this section, the Office of Compliance Inspections and Examinations (OCIE) says:

“[A]s investors are more dependent than ever on their own investments for retirement, the financial services industry is offering a broad array of information, advice, products, and services to retail investors to help them plan for, and live in, their retirement years. We are planning various examination initiatives to assess risks to retail investors that can arise from these trends.”

Clearly, this shows the OCIE’s concern with the difficulties facing retail investors in managing their investments—and particularly their IRA rollover investments, so that they provide sustainable income levels for 20, 30, or more years of retirement. While each of the six bullet points following the introduction could apply to IRA investors, these are the most directly connected:

  • First, and perhaps foremost, the OCIE says: “We will assess whether registrants are using improper or misleading practices when recommending the movement of retirement assets from employer-sponsored defined contribution plans into other investments and accounts, especially when they pose greater risks and/or charge higher fees.”

    Here, the SEC is echoing the concerns expressed by FINRA and the DOL about higher fees in IRAs as compared to retirement plans. Also, advisers need to be concerned about risk in the investments that are included in IRAs. For example, we have seen IRA account opening forms where “speculative” is listed as a risk tolerance. Needless to say, “speculative” could be risky for long-term retirement money . . . for both the investor and the adviser.

  • Under the heading of “Suitability,” the OCIE says: “We will evaluate registered entities’ recommendations or determinations to invest retirement assets into complex or structured products and higher yield securities, including whether the due diligence conducted, the disclosures made, and the suitability of the recommendations or determinations are consistent with existing legal requirements.”

    This again emphasizes the degree of risk that’s appropriate in investing retirement assets. Stated slightly differently, the SEC is focusing on the “suitability” of investments or investment programs that are intended to last for 20 or 30 years, or more, where periodic withdrawals will be taking place. A fair amount of research demonstrates that withdrawals from highly volatile investments can pose significant risk to the sustainability of a portfolio. That said, from a risk-management perspective, it makes sense to monitor the suitability of recommendations for investments and portfolios that are intended for retirement and, therefore, support long-term withdrawals.

  • Under the heading of “Fee Selection and Reverse Churning,” the OCIE stated, in part: “Where an adviser offers a variety of fee arrangements, we will focus on recommendations of account types and whether they are in the best interest of the client at the inception of the arrangement and thereafter, including fees charged, services provided, and disclosures made about such relationships.”

    This mirrors the DOL’s thinking . . . at least in the concerns about the services provided and the fees to be charged for those services. Beyond that, though, we believe OCIE is becoming more focused on the long-term nature of investing for retirement income in rollover IRAs . . . and the need for ongoing services in that setting. And, of course, the drumbeat continues on the amounts and reasonableness of fees relative to the services being provided.

These are the key points. We see this as an evolving issue . . . where regulatory oversight will be increasing as more boomers roll over into IRAs and as wealth management becomes more focused on investing for long-term retirement income.

The 2015 OCIE Examination Priorities can be found here.

© 2022 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume V, Number 35

About this Author

Fred Reis Faegre Drinker Biddle Law Firm, Los Angeles, Labor and Employment Law Attorney

Fred Reish represents clients in fiduciary issues, prohibited transactions, tax-qualification and Department of Labor, Securities and Exchange Commission and FINRA examinations of retirement plans and IRA issues.

Fred works with both private and public sector entities and their plans and fiduciaries and represents plans, employers and fiduciaries before federal agencies such as the DOL and IRS. He consults with banks, trust companies, insurance companies and mutual fund management companies on 401(k) recordkeeping services, investment products and...

(310) 203-4047
Bruce Ashton, Drinker Biddle Law Firm Los Angeles, Employment Benefits Attorney

Bruce L. Ashton has more than 35 years of experience handling employee benefits matters. His practice concentrates on representing plan service providers (including RIAs, independent record-keepers, third-party administrators, broker-dealers and insurance companies) in fulfilling their obligations under ERISA. His experience includes representing public and private sector plans and their sponsors, negotiating the resolution of plan qualification issues under IRS remedial correction programs, advising and defending fiduciaries on their obligations and...

Joan M. Neri, Counsel, Drinker Biddle, Employee Benefits, Executive Compensation

Her practice focuses on all aspects of employee benefits counseling.  Joan represents plan service providers (including registered investment advisers, third party administrators, and recordkeepers) in fulfilling their obligations under ERISA.  Joan also represents plan sponsor clients on the design of qualified retirement plans (including ESOPs), nonqualified executive compensation plans and welfare benefit plans, day-to-day plan administrative issues and transactional planning involving benefit plan acquisitions, plan mergers and plan terminations.  Joan has represented major publicly-...

Bradford Campbell Labor & Employment Attorney Faegre Drinker Biddle & Reath Washington, D.C.

Bradford Campbell is a nationally recognized figure in employer-sponsored retirement plans who leverages his prior experience as the U.S. Assistant Secretary of Labor for Employee Benefits to advise clients across a broad range of issues related to the Employee Retirement Income Security Act (ERISA). As ERISA’s former “top cop” and primary regulator, Brad has detailed and wide-ranging knowledge of the structure and operation of ERISA plans, insight that he applies to client engagements.

Brad advises financial service providers and plan sponsors, particularly in relation to ERISA...

Joshua Waldbeser, Employment lawyer, Drinker Biddle

Joshua J. Waldbeser counsels plan sponsors and committees with respect to their fiduciary responsibilities under ERISA, as well as design and operational considerations for 401(k) plans, ESOPs and other defined contribution plans, cash balance and traditional defined benefit plans, and deferred compensation arrangements of all types. Josh also works extensively with insurance companies, investment advisors and funds, banks and trust companies, broker-dealers, record keepers, TPAs and other service providers with respect to ERISA, tax, securities and...