The SEC says it is upping its scrutiny and examinations of advisors and brokers who offer retirement products as promised.
Given that more than 5 million elders are victims of financial abuse annually, the initiative is timely, says securities lawyer Bettina Eckerle of Eckerle Law in New York.
"The statistics are staggering," Eckerle says. "I had no idea there are so many predators out there."
The commission plans to use data analytics and information collected from previous exams to identify which registrants it seeks to examine under the new initiative, called Retirement-Targeted Industry Reviews and Examinations.
The initiative "will focus on certain higher-risk areas of registrants' sales, investment and oversight processes, with particular emphasis on select areas where retail investors saving for retirement may be harmed," the commission wrote in a statement.
The review will focus, the SEC says, on both investment advisor representatives and brokers' retirement accounts in the following areas:
- Reasonable basis for recommendations. The commission will check to make sure advisors are in compliance with federal securities laws and self-regulatory organization rules when making investment recommendations. The SEC staff will assess how consistent advisors are in selecting types of accounts, performing due diligence on investment options, making initial recommendations and providing ongoing account management.
- Conflicts of interest. Many advisors have conflicts of interest built into their business structures, personal issues, relationships and relationships with service providers. The SEC will review how effectively advisors disclose all material conflicts of interest and design compliance programs to address those conflicts. The SEC will review planners' sales and account selection processes in light of the fees charged, services provided and the expense of those services.
- Supervision and compliance controls. Advisors and firms must have systems in place to ensure adequate supervision of their operations and staff to ensure compliance with laws and rules, the commission says. "The staff will review registrants' controls, oversight, and supervisory policies and procedures, as appropriate," the SEC says. The staff also may focus on, "registrants with operations in multiple or distant branch offices and representatives with outside business activities."
- Marketing and disclosure. "Registrants generally must ensure that materials distributed to investors are not deceptive or misleading," the commission says. SEC staff members will review brochures and other sales materials to ensure they are accurate and disclose all material facts when there is a duty to disclose.
"Have something in your policies and procedures that deals with sensitivity to red flags," Eckerle adds. "How do I deal with someone who comes in and seems confused or comes in and seems to be under the influence of relatives or caregivers? Make sure that your staff knows what [the red flags] are and how to act on them."
Also ensure that your clients' files routinely note clients' ages and special measures your firm takes in selecting the appropriate strategies for them, she adds.
"The big picture view is the more the regulators can do to protect somebody that is vulnerable," Eckerle says, "the better."
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