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Regulatory Scrutiny Mounts for Retirement Advisors

WASHINGTON -- With millions of Baby Boomers nearing retirement, federal and industry regulators are taking a hard look at the practices of advisors and brokers who are counseling retiring workers on how to plan for the transition, industry officials caution.

In recent months, warnings about the integrity of retirement advice the industry is providing have come from many corners, including the SEC, FINRA and the Department of Labor.

"We're seeing sort of a harmonization, convergence of different regulators that are swirling around this," Thomas Roberts, of counsel with the Groom Law Group, said this week at the Insured Retirement Institute's regulatory conference.

What's driving that interest? Follow the money, Roberts says. In the first quarter of 2014, U.S. retirement assets totaled $23 trillion, according to data from the Investment Company Institute. At $6.6 trillion, IRAs accounted for the largest single slice of the retirement pie. Cerulli Associates reported that in 2012, rollover contributions to IRAs totaled $321 billion.

"With that sort of money in motion it's no surprise that regulators are beginning to take a new interest in this market," Roberts says.

"Just the sheer size of the IRA market has caught the attention of regulators," adds Bill Griesser, managing director of product and program development at TIAA-CREF. "It is the fastest growing market, and that's not going to change."

The SEC signaled its concerns about the retirement space in its 2014 examination guidance identifying advisor misrepresentation, conflicts of interest and misleading marketing and advertising, among others issues, as particular areas of alarm for investors rolling over plans into an IRA.

"They're going to be looking at sales practices," says William Wilcox, vice president and chief legal officer at Prudential Annuity Distributors. "They're going to be looking at firms that target retirement age workers to roll over from 401(k) plans."

As with any product, advisors working in the retirement space must conduct their due diligence to determine whether the IRA they're considering for a rollover fits with a client's investment strategy. But record keepers like TIAA-CREF also hold a distinct responsibility to ensure that the professionals in the field understand the products they are recommending.

"It really comes down to the training of advisors," Griesser says, "making sure that they know the things they need to know to advise clients."

In December, FINRA offered its own reminder to firms marketing IRAs or handling rollovers, with an emphasis on the suitability requirements for brokers working in that sector. FINRA cautioned both brokers and advisors that they must help clients weigh the full menu of options available to them as they change jobs or retire, including leaving their funds with their current 401(k), if allowed. FINRA expects those conversations with clients to touch on considerations such as fees and expenses and required minimum distributions when contemplating a rollover. Those responsibilities extend to the marketing materials that brokers present to clients, the industry regulator cautions.

"Whether in written sales material or an oral marketing campaign, it would be false and misleading to imply that a retiree's only choice, or only sound choice, is to roll over her plan assets to an IRA sponsored by the broker-dealer," FINRA warned.

"At the end of the day this is about making sure that we understand the client, that we lay out all the various options for them," says Beth Maziad, a vice president at Raymond James Insurance Group.

While both the SEC and FINRA have indicated that their examiners will be looking closely at retirement and rollover issues when they visit firms, a new rule proposal underway at the Department of Labor is perhaps causing more uncertainty in the industry.

Those rules, currently set for a draft release in January, would extend fiduciary responsibilities to advisors working with plans and individuals considering how to prepare for retirement.

Groom Law Group Chairman Stephen Saxon has suggested that the controversy surrounding that proposal -- lawmakers and groups representing brokers have raised pointed objections -- could ultimately derail the Labor Department's effort. For now, however, Labor says it is pressing forward, though details of the proposal remain unclear.

Saxon and other opponents fear that the DoL will cast a wide net with its rules, potentially implicating employers and call center staff who would be considered fiduciaries when fielding basic questions about an employee's plan options.

"What we think they're going to do is take a broader approach, so that any time you talk to a participant about what the options are with respect to their distribution that you would become a fiduciary, and that's what got the whole brokerage industry so upset," Saxon says.

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