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The Fiduciary Standard Hits Your Living Room



Written by: Katie Libby | REGline 

As families enter back-to-school season and all that comes along with it, you may have caught a glimpse of a new ad series in TV’s Fall Line Up – the Americans to Protect Family Security ad campaign. The group, a partnership of financial advisors, life insurance agents and life insurance companies, has launched a series of dramatic ads taking aim at proposed Department of Labor regulations.

In one clip, Parents wave goodbye as they deliver their daughter to college. The wife asks nervously “How are we going to afford this?” The conversation quickly segues into her concern that “It’s these new regulations in Washington that worry me. They want to make it really hard to get advice from our financial advisor.”  The husband is aghast – “No more help from Anne?!” then later, “We’re going to call our senators.” The spot closes urging Americans to call Congress and tell them to “Fix This Now!”

The proposed regulation sparking the theatrical outburst would require that sellers of annuities, life insurance, IRAs, 401(k) investments and other such retirement products be held to a fiduciary standard.  The Department of Labor opened a four-day public hearing regarding the matter on August 10th where it received heated comment.  Assistant Secretary Phyllis C. Borzi set the stage by noting that, “[The DOL’s] regulatory impact analysis concluded that IRA investors can expect to lose more than $210 billion over the next ten years as a result of the underperformance associated with conflicts of interest.”1 She insisted the Department is not trying to penalize anyone for behaving badly, but is rather trying to change an outdated and structurally flawed system.

A key component of the current proposal would require more retirement investment advisers to put their client’s best interest first, specifically as it relates to rollovers from an employer-based plan to an IRA. This focus falls in step with both the Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC) who targeted IRA Rollover Practices in their examination priorities for 2014. Additionally, in June 2015, the SEC launched a multi-year industry review and examination initiative, the Retirement Targeted Industry Reviews and Examinations Initiative (ReTIRE).

As the focus continues to sharpen and debates heat up, the following fundamentals, as identified by the SEC as focus areas of the ReTIRE examination initiative, should be kept top of mind as your firm services retiring and senior clients, especially when recommending rollovers of retirement assets:

  • Document the basis for recommendations. This documentation should demonstrate that your firm considered its obligations to clients when (i) selecting the type of account; (ii) performing due diligence on investment options; (iii) making initial investment recommendations; and (iv) providing ongoing management.
  • Review and address conflicts of interest. Don’t overlook conflicts that may be inherent in your firm’s compensation structure, business structure, and personal or service provider relationships.  Your firm’s compliance program should be designed to address the risks associated with the identified conflicts, and to disclose the material conflicts when they cannot be eliminated.
  • Supervise your representatives and review their sales practices. Review your firm’s compliance and oversight program.  This program should be tailored to your firm’s specific business, and it is critical that your firm be in compliance with the policies and procedures it has adopted.  Firms with multiple business locations and those with reps who have outside business activities will be a particular focus for the SEC.
  • Verify that communications with the public are fair and balanced. Ensure marketing and advertising is not deceptive or misleading and that materials and posts are true, accurate, and do not omit material information.  Confirm that fee disclosures are clear and complete. Finally, ensure that any professional credentials used are valid and meet stipulated standards.

With 10,000 Baby Boomers projected to retire each day in America through the year 2019, the saga is far from over.

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