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SEC Examiners to Focus on Retirement Planning Issues

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SEC examiners reviewing RIA practices this year plan to take a close look at the types of products and advice advisors are offering to retail investors planning for retirement, according to the commission's compliance division.

On Tuesday, the SEC's Office of Compliance Inspections and Examinations released its exam priorities for advisors, broker-dealers and transfer agents in 2015, focusing much of the discussion on issues involving retail investor protection and saving for retirement.

"Retail investors of all ages face a complex and evolving set of options when determining how to invest their money, including retirement funds," OCIE writes.

One concern, it says, is that brokers and advisors have been chasing yield through complex or risky vehicles such as private funds and structured products. The mounting complexity of the products, services and information available to comes as "investors are more dependent than ever on their own investments for retirement," OCIE says, citing the long-running shift away from employer-sponsored defined-benefit plans toward defined-contribution plans.


The annual exam priorities, issued early in each of the last three years, highlight for industry the areas of greatest concern within the commission. That makes the document a warning that advisors ignore at their own peril, compliance experts say.

"This may be the most important regulatory document published all year," Cipperman Compliance Services said in a note circulated Tuesday. "Firms should prepare their compliance programs to address the issues identified or risk enforcement proceedings."

OCIE says it will take a hard look the sales practices of advisors who help clients transition their retirement assets from an employer-sponsored plan into an individual account or other investments -- particularly when that move entails greater risk or higher fees.


Fee selection and account placement once again figure prominently in the SEC's guidance, as OCIE officials have been wary of how dually registered brokers and advisors determine in which wing of the practice to put the account.

In particular, the commission reiterated its concern about "reverse churning": the practice of putting a seldom-traded account in the RIA side of the practice, where it could be subject to an annual fee based on AUM or any number of other fee structures.

"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," OCIE says.

Similarly, SEC examiners intend to evaluate advisors' recommendations for investing retirement savings in complex products, raising questions about disclosures and the due diligence conducted.

"To the extent that I had retail clients," says Sanjay Lamba, assistant general counsel at the Investment Adviser Association, "I would focus on my sales practices, my advertising, fiduciary duty -- in terms of, are they being put in the right accounts?"

Other areas of concern outlined in OCIE's guidance continue existing initiatives, including firms' cybersecurity practices. Last year, the commission conducted a sweep to evaluate cybersecurity at broker-dealer and advisor firms -- a program the agency says it will now extend to transfer agents.

OCIE also says that it will continue to build on its efforts to mine SEC data to ferret out bad actors and potential violations -- including recidivist representatives, excessive trading and microcap fraud.

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