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IRA Rollovers In The Regulatory Crosshairs

Posted by Sean Cunniff, Investment Management research leader, Deloitte Services LP, on March 5, 2014

Last year, the Deloitte Center for Financial Services surveyed more than 4,000 people to learn how they felt about their retirement readiness. The resulting report, Meeting the Retirement Challenge: New Approaches and Solutions for the Financial Services Industry1, revealed some very interesting findings. Half of those surveyed cited retirement as a top priority, yet only 30 percent said they felt very secure about retirement2. Another significant finding was that only 15 percent of those surveyed found mutual fund companies, investment advisors and brokers completely trustworthy3.

The U.S. government is well aware of the lack of retirement confidence of many Americans. The President, in his recent State of the Union address4, announced that he was directing the Treasury Department to launch a new type of retirement account, the MyRA, as an easy way to save for those workers not already covered by an employer retirement plan.

Financial industry regulators are also focused on the retirement issue and have recently targeted the issue of individuals rolling over assets from an employer sponsored retirement plan to an Individual Retirement Account (IRA). These regulators recognize that, for many people, workplace retirement plans represent a very significant portion of their savings and that the "rollover" decision can have a long-lasting financial impact.

The General Accounting Office (GAO) hit upon the importance of rollovers in a report, GAO-13-30, issued in March of 20135. The report highlighted what the GAO felt were some specific shortcomings in the current rollover process and listed several recommendations for improvement. This report generated significant press and may have been a catalyst for some regulatory initiative that came from both the U.S. Securities Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Here is a quick rundown on the recent regulatory focus:

  • SEC
    • In January 2014, the SEC released its 2014 National Exam priorities6. It included "Retirement Vehicles and Rollover" as an area of focus for investment advisors and broker-dealers. Areas of concern noted for investment advisors were sales practices, including moving clients to higher-cost investments, as well as the potential misrepresentation of advisor credentials or the features and benefits of IRAs. For broker-dealers, major concerns were misleading designations, misleading marketing and advertising, conflicts, suitability and churning and the potential misuse of designations.
    • In December 2013, FINRA issued Regulatory Notice 13-45, dealing with IRA rollovers7. Specific topics included fees and expenses, conflicts of interest, supervision, training and communications with the public. FINRA also noted that the recommendation for the type of retirement account a client should have falls under FINRA Rule 2111 regarding suitability.
    • In January 2014, FINRA also issued an Investor Alert entitled The IRA Rollover: 10 Tips to Making a Sound Decision8. Again, the issue of conflicts and fees were highlighted.

In light of the attention on IRA rollovers, financial services institutions may want to consider the following:

  • Reviewing and documenting their current IRA rollover sales, marketing, compensation and training practices. This should be a broad review across the organization including investment managers, broker-dealers and registered investment advisers, as well as insurance and banking divisions that may be involved in the IRA rollover process.
  • Reviewing the regulatory guidance available on IRA rollover practices, including past guidance such as Department of Labor Advisory Opinion 2005-23A9, which also has a focus on conflicts of interest.
  • Mapping current practices against regulatory guidance to identify gaps or potential risk areas and efficiently addressing the high priority issues.

While conducting a rollover review can have an immediate positive impact in improving compliance, there may also be a longer term benefit. When participants in the survey cited above were asked why they didn't trust financial institutions or professionals for their retirement needs, one reply was: "I am concerned they are in it for the bottom line and not for my needs." By addressing some of the concerns regulators have around conflicts, fees and suitability, financial institutions might start to alleviate those types of concerns and start to build back the trust that many customers desire.

1"Meeting the retirement challenge: New approaches and solutions for the financial services industry," Deloitte Center for Financial Services, 2013.
4"President Barack Obama's State of the Union Address," January 28, 2014.
5"401(K) Plans: Labor and IRS could improve the rollover process for participants," United States Government Accountability Office, March 2013.
6"Examination priorities for 2014," National Exam Program, Office of Compliance Inspections and Examinations, U.S. Securities and Exchange Commission, January 9, 2014.
7"Regulatory notice: Rollovers to Individual Retirement Accounts," Financial Industry Regulatory Authority, December 3, 2013.
8"The IRA rollover: 10 tips to making a sound decision," Financial Industry Regulatory Authority, January 23, 2014.
9"Advisory opinion: 2005-23A," United States Department of Labor, December 7, 2005.

As used in this document, "Deloitte" means Deloitte LLP [and its subsidiaries]. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Related links

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