In fact, given the fact that the agency has spelled out its expectations regarding what rollover recommendations it will look at, “the SEC appears likely to increase its scrutiny of investment advisers’ practices relating to rollovers,” Reish warned.
The SEC’s RIA guidance says the following: “We consider advice about ‘rollovers’ to include advice about account type, in addition to any advice regarding the investments or investment strategy with respect to the assets to be rolled over, as the advice necessarily includes the advice about the account type into which assets are to be rolled over.”
Advisors also need to pay attention to their Reg BI conflict of interest disclosure obligations, the law firm said. “Use the dreaded disclosure term ‘may’ at your own peril," the primer said.
The use of this general term “is not adequate when the conflict actually exists,” according to the RIA guidance.
“Further, the use of this term would be inappropriate if it simply precedes a list of all possible or potential conflicts and ‘obfuscates actual conflicts to the point that a client cannot provide informed consent,’” the attorneys said.
In response to a comment letter, “the SEC provides a sentence in passing (and perhaps somewhat begrudgingly) that this term 'could' be used appropriately to disclose a conflict that currently does not exist but might in the future,” Lundy wrote.
“It is unclear how much comfort this provides, so a takeaway for firms that plan to continue to use the term 'may'—and any other type of broad and general terminology to discuss actual existing conflicts—is that they will be doing so at their own peril,” he added.