The Securities and Exchange Commission has made good on its promise to prioritize retirement savings.
Last week the Office of Compliance Inspections and Examinations launched the Retirement-Targeted Industry Reviews and Examinations Initiative, a multi-year program that will home in on RIAs' and broker-dealers' advisory practices to retirement investors in the retail market.
An alert issued by the OCIE said the new ReTIRE initiative will combine information from previous exams with new due diligence and data sweeps to determine which advisors and brokers will be subject to exams.
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The basis for recommendations RIAs and brokers give, potential conflicts of interest, how internal compliance programs alert advisors to potential conflicts, and the accuracy of marketing and disclosure materials will be vetted as part of the exams, according to the alert.
Earlier this year, the OCIE went into further detail on the areas of advisors' and brokers' practices that it intends to inspect when the agency released its exam priorities for 2015.
Fee-selection and "reverse churning" by hybrid-advisors that offer various fee structures will be probed, according to a list of 2015's exam priorities.
"Where an adviser offers a variety of fee arrangements, we will focus on recommendations of account types and whether they are in the best interest of the client at the inception of the arrangement and thereafter, including fees charged, services provided, and disclosures made about such relationships," according to a document laying out exam priorities.
How the industry is advising rollovers of 401(k) assets will also be vetted, particularly when recommendations "pose greater risk and/or charge higher fees."
Investment managers of alternative mutual funds that market returns uncorrelated to the stock market will be scrutinized, as will the interest rate risk of fixed-income mutual funds, and whether those risks are being adequately disclosed to retirement investors.
The new effort codifies previous signals the SEC has sent that Wall Street's top cop is zeroing in on the investment options put in front of retirement investors.
In a speech at the American Retirement Initiative last February, outgoing SEC commissioner Luis Aguilar called the "relentless" growth in Target Date Funds "troubling."
And a joint initiative with the Financial Industry Regulatory Authority, the National Senior Investment Initiative, focused on how firms conduct business with investors 65 and older as they prepare for retirement.
Data for 2013 exams of 44 broker-dealers found 34 percent of firms made one or more potentially unsuitable recommendations of variable annuities to senior investors.
About 14 percent of the firms reviewed by the regulators made potentially unsuitable recommendations to buy alternative investments.
In one firm, a 90-year old, low-income investor was sold an alternative investment, which are known to often be complex, difficult to value, and expensive. In the case of another client, a rep from the same firm failed to consider the limited investment experience and investment objectives of another senior investor.
In both cases, the investments were held for less than 10 days, and resulted in "significant realized losses," according to the report.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
