IRA and Rollover Considerations

IRA and Rollover Considerations

  1. Reg-BI IRA and Rollover Considerations
  2. BDs and RIAs must keep a record of:
  3. Less than 2 months to the compliance deadline!

Unfortunately, newly unemployed people may be considering rollovers from their company’s 401 (k) to an IRA. During the 2008-09 financial crisis, almost 1 in 5 employers pulled back their matching contributions to 401 (k) plans. The Fed Chair, Jerome Powell, announced his expectation that the economy will not make a full recovery until the end of 2021. Other experts predict that the current recession will be worse and many companies already cut back on their employee retirement packages. 

There are numerous policy and regulatory changes to how a rollover from a 401(k) plan to an IRA. The CARES Act suspended or waved all required minimum distributions in 2020 and easied the penalty for pulling from retirement savings. But, the SEC’s Regulation Best Interest is also bearing down on Broker-Dealers and Financial Advisors with the June 30th deadline creeping closer.

In this article, I outline some of the SEC’s expectations about proper protocol for making a retirement rollover recommendation.

Reg-BI IRA and Rollover Considerations

Luckily, the SEC is explicit about what sort of considerations Broker-Dealers (BDs) need to make when making account type recommendations, or recommendations to open an IRA, or to roll over assets into an IRA.

Click HERE to read about how to determine if a recommendation is “best interest”

Before making an account type recommendation, BDs should consider:

  • alternative account types available;
  • the projected cost to the retail customer of the account;
  • the services and products provided in the account;
  • the services requested by the retail customer; and
  • the retail customer’s investment profile.

 Before making recommendations to open an IRA, or to roll over assets into an IRA,  BDS should consider:

  • any special features of the existing account;
  • holdings of employer stock;
  • application of required minimum distributions;
  • available investment options;
  • ability to take penalty-free withdrawals;
  • fees and expenses;
  • level of services available; and
  • protections from creditors and legal judgments.

Remember: Compliance is only as effective as your proof of compliance.

So, it is essential to change your procedures to make sure that you are recording when you make disclosures to every client.

The SEC believes that it is giving RIAs and BDs freedom to become compliant depending on their unique business practices. Time will tell if this is true, but, regardless, documentation will be essential to prove the best intentions. Reg-BI tries to anticipate this need by requiring new record-making and recordkeeping requirements which build upon existing obligations.

BDs and RIAs must keep a record of

  • All information collected from a customer or client and when;
  • all information provided to each retail customer who receives a recommendation, and when it was provided; and
  • the records must be collected and kept secure for at least 6 years after the account’s closing date.

Less than 2 months to the compliance deadline!

The June 30th compliance deadline for Reg-BI and the CRS Form is not going anywhere – even though the Pandemic shutdown has effectively catalyzed a recession. Don’t Panic! Even if you have not begun thinking about all the compliance components, RiXtrema offers an easy and affordable compliance solution that ensures every one of your firm’s RIAs or BDs asks the required questions and stores the

Best of all: RiXtrema’s RegBI Optimizer is far cheaper than the costs the SEC expects every RIA or BD firm to pay in compliance costs.

There is a ton of free information on our website on Reg-BI and we have a free Compliance Guide to help firms prepare for when the SEC strolls around for their first examinations.

Click the banner below to request a quick demonstration of Regulation Best Interest.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.