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SEC Issues Alert on Retirement Sweep

The SEC’s Office of Compliance Inspection and Examinations announced a multi-year initiative targeting broker-dealers and investment advisers offering retirement advice known as the Retirement-Targeted Industry Reviews and Examinations (ReTIRE) Initiative. OCIE is focusing on the retirement arena due to the “complex and evolving set of factors that retail investors face when making such investment decisions” including “the broad and changing array of investments available and services offered and the changing market environment.”

OCIE will examine broker-dealers and investment advisers focusing on “certain higher-risk areas of registrants’ sales, investment, and oversight processes, with particular emphasis on select areas where retail investors saving for retirement may be harmed.” Specific areas identified by OCIE include:

  • whether representatives have a reasonable basis for recommendations relating to the type of account, initial investment recommendations, and ongoing account management;
  • whether registrants are identifying, disclosing, and generally addressing conflicts of interest, including whether “material conflicts of interest, such as compensation structures that may incentivize representatives to make certain recommendations, are disclosed or otherwise addressed”;
  • whether registrants are adequately supervising representatives and have adequate controls in place, specifically focusing on branch offices and representatives with outside business activities; and
  • whether marketing materials distributed by the registrants are complete, truthful, and not misleading.

Several of the topics selected for the exam initiative appear to overlap with issues that the Department of Labor identified as reasons behind its recently released fiduciary proposal, particularly the focus on conflicts of interest.