Earlier this month, the National Examination Program released its 2014 examination priorities focusing on the Securities and Exchange Commission’s mission to protect investors and on areas of "heightened risk."
I see two areas of particular interest to the average investor: rollovers of retirement assets and conflicts of interest with certain types of financial advisers. I’ll cover rollovers today.
I’m sure you’ve seen advertisements encouraging people to roll over their 401(k)s and other retirement-plan assets into IRA accounts. 401(k)s are plans offered by employers to their employees. IRAs are tax-deferred accounts that individuals set up on their own through a brokerage firm, mutual-fund company or bank.
It is not unusual for people to transfer or "roll over" their employer plans to IRAs when they change jobs or retire. However, the way those rollovers might occur is the subject of the SEC’s 2014 examination priorities.
The SEC will be examining firms to determine if any sales practices are harmful to investors — that is, whether there are "incentives to recommend that the assets be placed with an IRA or other alternative offered by a financial services firm."
As a result, the examiners will:
"(a) examin[e] the sales practices of investment advisers targeting retirement-age workers to roll over their employer-sponsored 401(k) plan into higher cost investments, including whether advisers are misrepresenting their credentials or the benefits and features of individual retirement account ("IRA") plans or other alternatives, and
"(b) examin[e] broker-dealers and investment advisers for possible improper or misleading marketing and advertising, conflicts, suitability, churning, and the use of potentially misleading professional designations when recommending the movement of assets from a retirement plan to an IRA rollover account in connection with a customer’s or client’s change of employment."
When I called the SEC press office to inquire why there is this examination focus, I was told the SEC had no stated position it could share with me.
I’ll keep you posted on what develops. In the meantime, let me give you a few insights:
First, when you are changing jobs or approaching retirement, you need to have unbiased advice, free from the potential for anything "improper or misleading" affecting your decision, especially if your retirement assets are a substantial part of your total asset picture. These are important assets that need to be protected for the rest of your life.
Second, you don’t want to be in a position of relying on expertise based on "potentially misleading professional designations." While the SEC’s exam focus does not identify problematic designations, you can imagine that some might not be as exacting as others. Some designations might be purchased for a fee after sitting in on a lecture. Most importantly, designations are not licenses regulated by the SEC or another regulatory body.
Be alert to the fact that any transitional period can be emotional, which can make you vulnerable and affect your thinking. Caution should be your guide.
If you choose to work with a financial salesperson to help you through the process, explore his or her skill, knowledge and ability to guide you. The decision to make a move is more complex than appears on the surface. It’s not simply moving from one account to another. You’ll have to judge ability beyond designations.
To learn more about designations, read the SEC-NASAA Investor Bulletin "Making Sense of Financial Professional Titles," which you can find at http://tinyurl.com/llaaog6.
Also read the Financial Industry Regulatory Authority’s "Understanding Professional Designations," which you can find at http://tinyurl.com/mnsl5sd.
As Andrew J. Bowden, director of the SEC’s Office of Compliance Inspections and Examinations, says, "We are publishing these [examination] priorities to highlight areas that we perceive to have heightened risk." Rollovers are one of these priorities.
Julie Jason, a personal money manager and award-winning author, welcomes your questions/comments (readers(at)juliejason.com).
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