SEC To Probe Rollover IRA Sales Practices

February 05, 2014

By Linda Koco

The Securities and Exchange Commission (SEC) is putting rollover individual retirement account (IRA) recommendations and sales practices on its radar screen, with special focus on potential conflicts of interest.

This is one of the priorities that the SEC has set for its National Examination Program for 2014, said Commissioner Luis A. Aguilar in a speech in Washington yesterday.

Since many insurance agents and advisors do a lot of rollover IRA business, and since many carriers offer rollover products and programs to help advisors with these accounts, the SEC inquiry will be of certain interest to the insurance industry.

Rollovers occur when people decide to move their assets out of a 401(k) or other qualified retirement plan after they have left or retired from the sponsoring employer. They “roll” their assets into IRAs, which are tax-qualified plans that can be structured with a wide variety of products including annuities, mutual funds, individual stocks/bonds and various other investments.

People don’t have to roll over their assets to an IRA. Other options include leaving their money in the former employer’s plan (if permitted), rolling it into in a new employer’s plan (if available and allowed), or cashing it out and paying the associated taxes.

But rollover IRAs are a hugely popular choice. In 2011, for example, almost 13 times the amount of dollars were added to IRAs through rollovers as compared with direct contributions, according to a June 2013 Employee Benefits Research Institute report.

Conflicts of interest

In his speech, Aguilar made clear that the SEC is concerned about conflicts of interest that can arise due to the commissions that rollover IRAs can generate for the IRA sales entity — the financial advisors and broker/dealers.

The broker/dealer has a financial incentive to recommend that plan assets be rolled over to an IRA, he said in remarks posted on the SEC website. In that case, the broker/dealer earns a commission, he told the Winter 2014 Summit of the American Retirement Initiative, an organization of retirement thought leaders that collaborate on improving retirement outcomes.

By contrast, if an investor leaves the plan assets with the former employer or rolls them over to a plan sponsored by a new employer, “that will result in little or no compensation for the broker-dealer,” he said, citing a December notice (No. 13-45) on the subject from the Financial Industry Regulatory Authority (FINRA).

In addition, he said that a financial advisor who is affiliated with a broker/dealer has an economic incentive,  too. This is to encourage an investor to rollover plan assets into an IRA managed by the broker/dealer, he said.

Noting that the largest source of contributions to IRAs are rollovers from employer-sponsored retirement plans, Aguilar warned that “there are a lot of potential commission dollars that can influence the advice given.”

In response, the commissioner said the SEC plans to:

·         Review the practices and incentives of investment advisors and broker/dealers in making recommendations on rollover IRAs.

·         Examine the sales practices of investment advisors that are “targeting” retirement-age workers to rollover their employer-sponsored 401(k) plans into higher cost investments.

·         Examine broker/dealers and investment advisors “for possible improper or misleading marketing and advertising, conflicts, suitability, churning and the use of potentially misleading professional designations when making recommendations on rollover IRAs.”


Other priorities that Aguilar identified for 2014 include examination of broker/dealer sales practices to detect and prevent fraud and other violations, including affinity fraud targeting seniors, and also broker/dealer supervision of registered representatives with significant disciplinary histories.

Last week, SEC Chair Mary Jo White signaled that the commission would be coming out with new examination priorities in 2014.

“This year will likely see us complete our docket of major investigations stemming from the financial crisis,” White told the Annual Securities Regulation Institute in a speech in Coronado, Calif.

“As we do, our focus and resources will naturally turn to other priorities. This shift has already begun.”

Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda may be reached at [email protected].

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2/22/2014 4:51:20 PM - sarasota,fl

right,that is what we need,more sec control with government oversight, that worked real well in the past.can you say bush social security stock market investment,what a end of world scanerio that would have been.wall street and the to big to fail banks have be very good to us,can you say total control. lol.


2/7/2014 1:17:36 PM - Kansas City

Maybe they could approach the 401k lobby on K street and facilitate some transparency about the (hidden) fees inside of those same accounts that they are "protecting"!


2/7/2014 1:16:39 PM - woodland Hills, CA

First, all of you are missing what is wrong with presentation. There is already a great disparity of the on-going contributions for both IRA and 401K's. IRA contributions are now $5500/6500 were as 401k's can easily get up and over $10,000 and add a match. If 401K accounts have been growing for years, and the Baby Boomer is retiring, it is easy to see why the account is so much larger. WE read with great regularity of lost pensions in companies, the Pension Guaranty Fund running out. We also find that when it comes to distributions, the Company payout is not always as high as outside sources. We know that beneficiary designations inside a 401k can limit estate planning significantly. Moving out the money can significantly enhanced the flexibilty and avenues for investment, again, we read constantly that a lot of 401K plan limit the investment choices as well as the sponsoring companies are now only required to provide investment advice, whereas for years, there was none. Moving out the funds could allow not only more choices, but better investment advice to be obtained. Whether or not the amount is much higher is probably not the issue, whether or not it was in the best interests of the client, which in most of the issues presented in the contribution, are covered by the compliance situations of not only the the broker dealer, if the agent is a registered rep, but also by the insurance company with their compliance forms. Adding more review is not the answer.

Keith K

2/6/2014 1:35:59 PM - Los Angeles

Is there any way I can just role over all my assets to the Federal Government and let them take care of me???


2/5/2014 2:45:16 PM -

I agree Jeremy! As I'm studying for my Series 65 exam to be more COMPLIANT when making retirement planning recommendations to clients, I feel like there is a regulatory organization (SEC) that wants total control & wants to put all of us insurance/registered Advisors out of business so our Govt can eventually run our financial system w/the SEC acting as the governing oversight department. Coming off a workshop on SS last evening, I am continuously reminded that we Advisors are needed more than e


2/5/2014 2:01:39 PM -

We already have something in place, it's called compliance/suitabilty review and replacement review. This has been in place for years in the insurance industry. The reviews are done by IMO/FMO's and the insurance carriers themselves. SEC needs to keep their noses out of other's business.

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