Since 2008, we have heard all kinds of troubling news about unemployment, the changing economy and job loss. At the same time, we have experienced a bull market that is about to celebrate its fifth anniversary. Individual stocks, such as Chipotle, Priceline, Expedia, Whole Foods and (of course) Apple, have increased in value more than 500 percent, some as much as 1,000 percent.

Job changes for many people have raised questions of what to do with their retirement plans. Should they keep their 401(k) with their previous employer? Can they keep it with their previous employer? Should they roll over the plan to a new employer? Or, more importantly, should they roll over into an IRA account? At the same time, the surging equities markets have enticed investors to more actively manage their retirement assets and to ostensibly seek to make up their prior losses with investment gains – a dangerous mix for retirement assets. These choices – and the sales practices surrounding them –recently have caught the attention of SEC and FINRA regulators. But, what are they looking at?

Last year, the U.S. Government Accountability Office (GAO) published a report of employer-sponsored retirement plans and IRAs, urging action to improve the rollover process for participants. The GAO report  criticized the disclosures that financial services firms provide to participants when counseling them on distribution options. FINRA also issued Notice 13-45  to “remind [broker-dealer] firms of their responsibilities” when recommending rollovers to IRAs and marketing IRAs and associated services. FINRA said that rollover recommendations and any related marketing needs to be “fair, balanced and not misleading.”

The main points FINRA raised in NTM 13-45 need to be carefully reviewed and implemented by firms immediately. They include:

  • IRA rollover recommendations should reflect consideration of various factors related to the investor’s individual needs and circumstances. Review these factors relative to each investor: (1) the range of investment options available through an IRA, compared with the potentially more limited options available in a client’s plan; (2) plan or account fees that a client may incur; (3) the levels of service available under an IRA and a client’s plan; (4) the tax consequences of each option, including early withdrawal penalties and required minimum distribution rules; and (5) the various levels of protection from creditors for assets held in IRAs and plans.
  • Broker-dealers should review their retirement services activities to assess conflicts of interest in recommending IRA rollovers.
  • Broker-dealers should ensure their recommendations and educational information regarding IRA rollovers do not violate FINRA’s suitability rule.
  • Broker-dealers should ensure that communications with the public regarding IRA rollovers are fair and balanced.
  • Notice 13-45 further indicates that written supervisory procedures and training programs should be reviewed and updated as necessary in light of Notice 13-45’s guidance. FINRA followed Notice 13-45 with the investor alert, “The IRA Rollover: 10 Tips to Making a Sound Decision,” which includes tips for investors that generally parallel the concerns that FINRA raised in Notice 13-45.

Strong procedures, training and education are often key components to avoiding regulatory scrutiny. Developing and implementing specific plans for particular products, such as IRAs, will help reduce if not avoid such inquiries.