Displaying items by tag: rollovers
Rollovers are one of the key areas of focus for advisors within the new SEC Best Interest rule (“Reg BI”). This is not just because of their importance for advisors generally, but because there was still a good degree of uncertainty over how the new rule would be applied to the area. Recent edits to the rule clarify its application, and the results are likely to seem a little unfavorable, as they are more strict than previously. In the past, rollovers were only subject to Rule 2111 if securities were to be bought or sold in the plan. This left a bit of wiggle room. However, the new Reg BI has been modified and Rule 2111 now applies to any situation, regardless of whether securities are involved. Thus, rollover recommendations by broker-dealers are now completely governed by the best interest standard in all scenarios.
FINSUM: Not unexpected, but many were hoping for more flexibility. At least there is now confirmation.
The SEC’s new Regulation Best Interest (Reg BI) is causing a lot of headaches and anxiety for brokers. Particularly, brokers are worried that the new rules governing rollovers are going to end up being a trap. Reg BI does address rollovers, even laying out some (but not all) of the factors that one should be considering when recommending them. But brokers feel the rules are too vague, which could lead to big trouble. In particular, there are fears that of all the factors, cost will have by far the most weight, which could lead to heavy penalties when recommendations are viewed in hindsight.
FINSUM: In addition to the Reg BI anxiety about rollovers, there is also growing tension because everyone is expecting the new DOL Fiduciary Rule to try to grab some power in the rollover area, which means there will be new complications to deal with.
Rollovers are one of the most important and hotly contested areas of forthcoming regulation. The mostly defunct DOL rule stated that advisors need to act in the best interest of clients when dealing with rollovers only if the firm was a fiduciary. However, the big forthcoming change is that the SEC Best Interest rule essentially states that advisors AND brokers need to act in the best interest of clients all the time, but allows that disclosure of material conflicts can be sufficient to overcome any hurdles. According to Drinker Biddle & Reath, a leading wealth management law firm, “Reg BI standard of care obligation requires that a broker-dealer have a reasonable basis to believe that taking the assets out of the plan and rolling them over to an IRA is in the best interest of the participant at the time of the recommendation”.
FINSUM: So the DOL rule was very strict but fairly narrow in application, while the SEC rule is broader (encompassing brokers and fiduciaries) but less strict.