WASHINGTON -- In the coming year, examiners with the SEC and FINRA are going to take a close look at the ways that broker-dealers and their advisor representatives are handling rollovers of clients' retirement plans, officials from the regulatory bodies said this week.

Both regulators have identified rollovers as a priority for their 2014 examinations, putting brokers and advisors on notice that they plan to scrutinize how they are working with clients who are planning for retirement.


"The rollover issue is really the key moment in someone's financial lifecycle. It's the critical moment, so it's appropriate for us to focus attention on it," Susan Axelrod, executive director of regulatory operations at FINRA, said during a panel discussion at the Financial Services Institute's OneVoice conference.

In part, authorities are concerned that brokers and advisors, chasing transaction fees or commissions, could be steering clients toward unnecessary or unwise rollovers.

More broadly, the market segment warrants closer scrutiny as more and more baby boomers head toward retirements that are heavily staked on their personal accounts, putting huge volumes of money in motion, according to Kevin Goodman, national associate director of the SEC's broker-dealer examination program.

"If you look at the numbers, there is just a burgeoning depository of assets that brokers or advisors can potentially get either transaction-based compensation [or] fees on. And so, as we see a burgeoning class of assets moving into the industry, we're going to focus on it," Goodman said.


He emphasized that while rollovers will be a key area of focus in the reviews his division conducts, the SEC is really on a fact-finding mission in a bid to understand industry practices and formulate a response.

The reviews, Goodman explained, aim to answer the question: "Is there a lot of abuse in this area? Are people really rolling over when no reasonable person would do so?"

"We'll be looking at this during a lot of exams to help form that policy," he said. "We want to know what the marketing efforts to potential clients and customers look like. Are they fair and balanced? We want to know what the conversations that occur between the registered rep or advisory rep and the client and customer sound like. Are they accurate? Are disclosures accurate? And just what is the training and analysis that goes into that presentation? How expansive is it? These are very, very complex issues."


In addition to the inquiries into the marketing practices involving rollovers, the SEC has its sights set on brokers and advisors who are the most active in transitioning investors' retirement plans, Goodman warned. He indicated that the advisors who post aberrantly high rollover rates can anticipate closer attention from examiners who will delve into the specifics of their interactions with clients.

"Any time that we see someone that's highly successful at getting customers or clients to roll over, that's where we're really going to dig in and look at it," Goodman said. "Because there's appropriate cases for rollovers and then there's some cases that clearly aren't appropriate. If someone has a really high batting percentage, that's where we want to dig in and perhaps talk to the clients or customers and figure out what conversations are happening. What were you told? What really led you to this decision?"


Rollovers are just one item on a long list of issues that regulators say they will focus on in 2014. Both FINRA and the SEC have expressed concerns about how brokers and advisors are handling elderly clients, looking at their sales practices and the procedures firms have in place to screen for signs that clients are being exploited by third parties.

Axelrod also reiterated FINRA's continued focus on conflicts of interest in the broker community, citing the report the group issued last October calling for, among other things, brokers to adopt a "best-interest-of-the-customer" standard when providing personalized advice.

"The conflicts report was really an important initiative for FINRA," she said.

The SEC is also planning to take a closer look at dually registered advisors who can place accounts in either the broker-dealer or investment advisory division of the practice, which are subject to different regulatory requirements.

"We're really looking for the outliers, which might be firms that are consistently guiding people to the wrong space in terms of what's in their best interest," Goodman said. "And so we're going to look at things like the level of training, the amount of investment advice given, the kind of client or customer it is, what types of investments they want and need to access."

Apart from targeting those bad actors, the SEC is hoping to learn more from dual registrants about how they organize their practice in light of the current regulatory considerations. The agency has been considering new rules that would harmonize the requirements for each registrant in the context of providing personalized investment advice.

"We want to better understand the comparative regulatory structures of investment advisors and broker-dealers and how firms think about those regulatory structures when they think about where they want to operate," Goodman said.

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