Registered investment advisers and broker-dealers that may be misrepresenting their credentials or the benefits and features of individual retirement accounts will be targeted by the Office of Compliance Inspections and Examinations of the Securities and Exchange Commission, based on the initiatives listed in a Jan. 9 release of the agency’s 2014 examinatfion priorities.
The so-called National Exam Program also will look at broker-dealers and investment advisers for “possible improper or misleading” conduct with regard to several potential problem areas in their dealings with clients rolling over assets from an employer-sponsored retirement plan to an IRA:
- marketing and advertising;
- conflicts of interest;
- suitability of investment products to clients;
- churning; and
- the use of potentially misleading professional designations.
Regarding advisers, OCIE said it would look at the sales practices of those “targeting” retirement-age workers to urge them to roll over their employer-sponsored 401(k) plans into higher-cost investments.
Each year, SEC’s OCIE releases a list of its examination priorities. Identification of potential problem areas comes from all over the agency, including the Enforcement Division. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires SEC to step up its examinations of investment advisers — firms that often supply services to retirement plan administrators — that are registered with it.
Generally, firms must have at least $100 million in assets under management to be regulated by SEC. Smaller firms are regulated by states, except in New York and Wyoming, which do not have their own adviser examination programs. Advisers in those states must register with SEC, regardless of their AUM.
Broker-dealers do not register directly with SEC, although they will be part of the NEP’s focus. Rather, a self-regulatory organization known as the Financial Industry Regulatory Authority directly supervises broker-dealers, although FINRA ultimately is accountable to SEC. Some retirement plan providers are registered as both investment advisers and broker-dealers and are known as “dual registrants.”
The SEC’s examination program has been under fire by the public and Congress, at least since the enactment of the Dodd-Frank Act, as being too weak. The typical adviser is examined only once every 11 years. Currently, about 11,000 advisers are registered with SEC.