Experienced Customers

AIG, based in New York, declined to comment on the complaint against FSC. In a filing responding to the allegations, FSC said most of the customers were multi- millionaires “with decades of investing experience” who understood the risks.

Brown left FSC in 2010 and works for another brokerage company in Atlanta.

The complaint “hasn’t been arbitrated, and all of it is not true,” he said in a telephone interview.

Federal regulators are targeting rollover abuse. Last year, the U.S Government Accountability Office, Congress’s investigative arm, found that a conflict of interest was fueling IRA growth. Financial companies that administer 401(k) plans misled GAO investigators posing as departing employees, telling them they would almost always be better off if they shifted to IRAs that the companies also managed.

Fiduciary Standard

The U.S. Labor Department has said it will propose rules in January that brokers and other advisors act in clients’ best interests during rollovers, a so-called fiduciary standard. Brokers are generally held to the lower standard of selling products that are suitable for their customers, meaning that they don’t have to put their clients’ interests first as long as they select appropriate investments. In January, Finra, the Wall Street self-policing group, warned members that it would heighten its scrutiny of IRA rollovers.

The Securities Industry and Financial Markets Association, which represents brokers, banks and money managers, opposes stricter regulation. It would hurt commission-based brokers, limiting consumer choice, according to the group. Disclosure rules are already sufficient to protect customers, said Ira Hammerman, the association’s executive vice president and general counsel.

“Let the customer decide,” Hammerman said.

Bank of America Corp.s’ Merrill Lynch and E*Trade Financial Corp. offer as much as $600 up front to anyone who rolls over a 401(k) into an IRA.

“If someone offers you $600 to roll over your IRA, you can be sure you are going to be paying a lot more additional expenses later,” said Mercer Bullard, an associate professor at the University of Mississippi Law School who heads Fund Democracy, an advocacy group for mutual-fund shareholders.

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