The Securities and Exchange Commission is looking more closely at your IRA rollovers, experts warn. Examiners will not only be sifting through rollovers from retirement plans but from other IRAs, annuities and commissionable products.

Regulators want to ensure that your product offerings, fees and commissions are justified, said Colleen Bell, chief fiduciary service officer at Cambridge Investment Research.

Bell and other leading executives spoke at Financial Advisor’s 9^th Annual Inside Retirement Conference in Las Vegas last week.

If you fail to justify your recommendations and fees for rollovers, you may trigger an SEC examination. “This is the most aggressive we’ve seen the SEC in years with respect to enforcement on the fiduciary side,” Bell said.

What exactly is the SEC looking at?

“They’re looking at reasonableness of fees. If they’re above 1 percent, you can push back and say it is reasonable, but you will have to justify that,” said Bell, who added that it is unclear whether the SEC will differentiate between financial planning and asset management fees when looking at the all-in bill to investors.

The danger for RIAs as the SEC ramps up its oversight is that many have not thought about whether their fees are reasonable, Bell said.

Fees are a hot topic with both the SEC and the Financial Industry Regulatory Authority, said Skip Schweiss, president of TD Ameritrade Trust Company.

The debate comes amid the recent death of the Department of Labor’s fiduciary rule, which would have required advisors to reveal their conflicts of interest in commission products. According to Schweiss, however, even though the rule is dead, “some of its principles are living on in exams and in other regulatory thinking.”

Clear Documentation

Since the bulk of advisor clients and assets come from retiree rollovers, how do practitioners protect themselves?

Thorough documentation is the key to good compliance, Schweiss said. Examiners want to see that the justification for rollovers and additional fees not only makes sense for the investor but that it is clearly documented.

Moving clients to fee accounts will not be justifiable for every investor, Schweiss warned.

Any recommendation that can’t be justified with the customer’s best interests in mind could be problematic and lead to an exam, both executives said.

Have A Fiduciary Process In Place

To reduce the risk of regulatory liability, Bell said advisors should “create a structure in your office, especially around compensation that incentivizes. How do you mitigate and document that in a way that shows you have a thoughtful process? I’d suggest you put it in writing. Have [the clients] sign it. Have that process and intake form for every single client.

“The SEC is interested in a broad array of potential conflict of interests, especially variable compensation offered by different products on the shelf,” Bell added. “To help advisors with that, [Cambridge] put together a fiduciary process to help them justify why they’re recommending one product over another.”

Cambridge’s fiduciary form is designed to help advisors and investors compare products. It looks at what products and services the clients and investors have today—and what fees and compensation they pay—and then compares those with the items the advisor is recommending. The tool helps advisors explain why they’re making a recommendation and clearly outline all the different but important variables. Both advisors and clients are given copies of the Cambridge best interest analysis. “The client signs it. The advisor signs it, and then we keep it in the file,” Bell said.

“You have to make sure you can clearly identify why you’re making the recommendation to make any movement, whether it’s from a plan to an IRA, from an IRA to an IRA, from a commission product to an advisory product,” Bell said. “I would clearly outline all those different variables so that when the SEC does ask, and they will, you have that information readily available.”

The SEC is looking at all recommendations and rollovers because of the growth in the number of retirees, Bell said.

One New York City advisor at the conference said he made it through a recent SEC examination virtually scot-free because he requires all clients to write and sign a note about why they’re hiring the firm. “The SEC examiners seemed amazed,” he said. “We got through the exam pretty much without a scratch, but we never knew what prompted it. The SEC doesn’t tell you.”

Rollovers from relatively inexpensive plans to more expensive products will definitely require justification, Schweiss added. For example, advisors who work with U.S. government employees may find that the Thrift Savings Plan (TSP) is so inexpensive that investors may be better off leaving their retirement assets where they are, Schweiss said.

“I’ve heard from advisors that they’ve had clients walk in the door with their retirement plan distribution check and say, ‘Here, invest this for me,’” Bell said. If customers in the TSP want a rollover regardless of fee discussions, it should be in your records and should say, “The employee doesn’t want to stay in their employer’s plan,” Bell said.

“Explain that they are going to get financial planning services and a vastly expanded universe of products in the rollover, if that’s the case.”

The SEC is also continuing to aggressively surveil for 12b-1 fees.

“We know that [the agency] is becoming more sophisticated,” Bell said. “They are using all the resources that they have available, including reaching out to all custodians to see who has received 12-b fees. They are also going through everyone’s form ADV.” If the agency finds the fees, it can prompt an examination.

The deadline has passed on the SEC’s share class disclosure initiative that allowed advisors to self-report, Schweiss noted.

“Disclosure is no longer enough with regard to 12b-1 fees,” Bell added. “Be very careful.”

Schweiss said in eight years he has never seen so much consumer press around the topic of advisors’ fiduciary duty.

“The DOL rule may be dead, but SEC Chairman Jay Clayton is intent on seeing his best interest proposal through,” said Schweiss, who predicted the SEC’s rule will be finalized in 2019, with no second round of proposals.