Skip to content

Broker-Dealer Regulation & Litigation Insights

  • About Us
  • Contributors
  • Resources
  • Presentations
  • Visit the Faegre Drinker website

Recommending Rollovers in the Evolving Regulatory Environment (Part 3)

In Parts 1 and 2 of this post, we talked about the current and proposed rules applicable to rollover recommendations by broker-dealers and RIAs. Part 1 discussed the DOL and FINRA rules that apply now. In Part 2, we explained the SEC proposals. In this post, we talk about how to make a compliant rollover recommendation, regardless of which set of rules applies.

(“Rollover recommendation” refers to advice to a retirement plan participant to take a distribution of his or her account and roll it over to an IRA that is being advised by the broker-dealer or RIA.)

General Standards

Before discussing the factors an advisor must consider, let’s review the general standards for making the recommendation:

  • The ERISA standard is the prudent process. The advisor must use “care, skill, prudence and diligence” and engage in a thorough investigation, which means gathering relevant information and evaluating that information in light of the needs and circumstances of the participant. In other words, the SEC’s proposals and the DOL’s vacated rule are remarkably similar on rollover recommendations, though the SEC’s proposal applies to all recommendations and the DOL’s rule would only have applied in the case of plans subject to ERISA.
  • The SEC’s Reg BI imposes similar requirements and uses similar wording. It refers to FINRA Regulatory Notice 13-45, which, like the ERISA requirement, says an advisor must obtain information about important factors (see below) and assess it in light of the investor profile. In addition to making sure the recommendation is “suitable,” Reg BI and the SEC’s RIA interpretation say it must be in the “best interest” of the participant. It then goes on to say that the advisor and his firm owe the participant a duty of loyalty, i.e., their interests cannot supersede those of the participant.

Stated simply, regardless of which rule is being applied, to satisfy the best interest and loyalty standards, an advisor (of a broker-dealer or an RIA) must use and document a process of gathering and carefully and professionally considering the relevant information.

Relevant Factors

What are the relevant factors? We think the two best sources are Regulatory Notice 13-45 and the DOL’s Best Interest Contract Exemption (BICE). Notice 13-45 is especially relevant since the SEC refers to it in Reg BI (and elsewhere). In essence, FINRA and the DOL said that advisors must consider, among other factors, the following:

  • the investments, services and expenses in the plan;
  • the investments, services and expenses for the proposed rollover IRA;
  • information about the participant, e.g., needs, financial objectives and risk tolerance;
  • though not required, other factors, such as participant preferences, outside assets, other family investments, and so on.

Why are we suggesting that advisors look at BICE? After all, it was vacated by the Fifth Circuit in June. But we think it reflects the DOL’s current thinking and is helpful guidance in trying to apply a “best interest” standard. Further, the DOL might use this list in enforcement actions against advisors who are plan fiduciaries making rollover recommendations. Also, FINRA and the SEC may defer to the DOL’s thinking in this area.

Keep in mind, though, the alternative we mentioned in Part 1…to provide participants with education about their options and not make a recommendation that triggers the best interest requirements.

Conclusion

In making rollover recommendations, good risk management suggests that broker-dealers and RIAS should develop policies, procedures and supervisory practices for gathering and considering the relevant information mentioned earlier: information about the plan investments, services and costs; and do a comparison with the same information in the proposed IRA, taking into account the investment profile of the participant.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

Subscribe and Receive Alerts to New Articles

SUBSCRIBE
October 22, 2018
Written by: Fred Reish
Category: DOL Fiduciary Rule, Fiduciary Duty, FINRA, FINRA Notice 13-45, IRA, Recommendation, Regulation Best Interest, Rollovers, SEC Reg BI, SEC RIA Interpretation

Post navigation

Previous Previous post: Third Circuit Affirms Right to FINRA Arbitration, Widens Circuit Split
Next Next post: A Summary of FINRA’s 2018 Report on Examination Findings

Subscribe to Alerts

Recent Posts

  • New Year’s Priorities: FINRA Releases its 2023 Report on its Examination and Risk Monitoring Program
  • Managing IRAs: Charging Different Fees for Different Investments
  • FINRA Is Conducting a Targeted Exam of “Crypto Assets”
  • Recent State Fiduciary and Best Interest Developments
  • Rollover Recommendations – Do the SEC and DOL Requirements Align?

Categories

  • 12b-1 Fees
  • 3270
  • 3280
  • 3290
  • Anti-Money Laundering
  • Arbitration
  • BD
  • Best Execution
  • Best Interest Contract Exemption
  • Best Interest Standard of Care
  • Business Continuity Planning
  • Churning
  • Class Certification
  • Compensation Issues
  • Compliance
  • Concurrent jurisdiction
  • Conflicts of Interest
  • Congress
  • Covered class actions
  • Covered securities
  • Credit
  • Cryptocurrencies
  • Customer Due Diligence Rule
  • Customer Protection
  • Cybersecurity
  • Dark Pools
  • Data Integrity
  • DOL Fiduciary Rule
  • Elder Abuse
  • Enforcement
  • Event Study
  • Examination
  • Exchange-Traded Funds (“ETF”)
  • exemptions
  • Fair Pricing
  • Fees
  • Fiduciary
  • Fiduciary Duty
  • Financial Services
  • FinCEN
  • FINRA
  • FINRA 2018 Annual Regulatory and Examination Priorities Letter
  • FINRA 360
  • FINRA Code of Arbitration Procedure 12204
  • FINRA Code of Arbitration Procedure 13204
  • FINRA Notice 13-45
  • FINRA Regulatory Notice 16-25
  • FINRA Rule 12200
  • FINRA Rule 13200
  • FINRA Rule 2111
  • FINRA Rule 2165
  • FINRA Rule 2232
  • FINRA Rule 3310(c)
  • FINRA Rule 4210
  • FINRA Rule 4512
  • FINRA Summary Report
  • Fixed Income
  • Fraud
  • Goldman v. City of Reno, 747 F.3d 733(2014)
  • Goldman v. Golden Empire Schools Financing, 767 F.3d 210(2014)
  • IA
  • Impartial Conduct Standards
  • In the Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Respondent (AWC 2009020188101/January 25, 2012)
  • Initial Coin Offerings
  • Investment Recommendation
  • Investor
  • IRA
  • Liquidity
  • Manipulation
  • Margin
  • Market Access
  • Market Access Controls
  • Mortgage
  • Mutual Funds
  • New FINRA Rule
  • OCIE
  • Office of the Solicitor General
  • Options
  • Outside Activities
  • Outside Business Activities (“OBA”)
  • Policies and Procedures
  • Price Impact
  • Private Securities Transactions (“PST”)
  • Private Securities Transactions of an Associated Person”
  • Prohibited Transactions
  • Prudence
  • Quantitative Suitability
  • Reading Health v. JP Morgan, No. 16-4234 (3d Cir. Aug. 7, 2018)
  • Reasonable Fees
  • Recommendation
  • Regulation Best Interest
  • Regulation SHO
  • Regulatory Notice 18-13
  • Retirement Account
  • Risk
  • Rollovers
  • SEC
  • SEC 2018 National Exam Program Examination Priorities
  • SEC Reg BI
  • SEC RIA Interpretation
  • Securities Act of 1933
  • Securities Class Action
  • Securities Litigation Uniform Standards Act of 1998 (SLUSA)
  • Senior Safe Act
  • Seniors
  • Service Providers
  • Short Sales
  • Suitability
  • supervision
  • Supreme Court
  • Surveillance
  • Technology Governance
  • UBS v. Carilion Clinic, 706 F.3d 319(2013)
  • Uncategorized
  • Unit Investment Trusts (“UIT”)
  • Verification of Assets and Liabilities

archives

  • 2023
    • February 2023
    • January 2023
  • 2022
    • December 2022
    • November 2022
    • October 2022
    • September 2022
    • August 2022
    • July 2022
    • May 2022
    • April 2022
    • March 2022
    • February 2022
    • January 2022
  • 2021
    • December 2021
    • November 2021
    • October 2021
    • August 2021
    • July 2021
    • May 2021
    • April 2021
    • March 2021
    • February 2021
    • January 2021
  • 2020
    • December 2020
    • November 2020
    • October 2020
    • September 2020
    • August 2020
    • July 2020
    • June 2020
    • May 2020
    • April 2020
    • March 2020
    • February 2020
    • January 2020
  • 2019
    • December 2019
    • November 2019
    • October 2019
    • September 2019
    • August 2019
    • July 2019
    • June 2019
    • May 2019
    • April 2019
    • March 2019
    • February 2019
    • January 2019
  • 2018
    • December 2018
    • October 2018
    • September 2018
    • August 2018
    • July 2018
    • June 2018
    • May 2018
    • April 2018
    • March 2018
    • February 2018
    • January 2018
  • 2017
    • December 2017
    • November 2017
    • October 2017
  • About Us
  • Contributors
  • Resources
  • Presentations
  • Visit the Faegre Drinker website

© 2023 Faegre Drinker Biddle & Reath LLP. All Rights Reserved. Lawyer Advertising.
Privacy Policy

We use cookies to improve your experience with our website. By browsing our site, you are agreeing to the use of cookies. For more information about how we use cookies, please review our privacy policy and cookie policy. OK
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Non-necessary
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
SAVE & ACCEPT