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.