4162 / How does the SEC Regulation Best Interest impact advisors who provide rollover advice to clients?

The SEC’s Regulation Best Interest, which prohibits broker-dealers and certain other advisors from providing conflicted advice, among other things, also applies to transactions involving rollovers between retirement accounts. The rule clearly states that the best interest standard will now apply to rollovers from employer-sponsored plans into IRAs.

Because of this, advisors who make recommendations regarding rollover of retirement assets will now be required to establish that the rollover was in the client’s best interest. Establishing that the rollover transaction was in the client’s best interests can be accomplished in a number of ways, including by showing that the advisory services provided by the advisor with respect to the IRA add value as a tool for meeting the client’s goals. This may be the case even if the fees associated with the IRA are higher than those in the employer plan. In other situations, investment options and investment mix in the rollover IRA may better suit the client’s goals. Generally, broker-dealers who make rollover recommendations must consider:

• fees and expenses,


• available services in both plans,


• available investment options,


• availability of penalty-free withdrawals from the accounts,


• how required minimum distribution (RMD) rules can impact the client’s goals,


• whether the plan provides any level of creditor protection,


• whether the plan permits holding of employer stock, and


• any additional special features of the initial account.

Ultimately, the SEC may provide additional guidance on the best interest standard with respect to rollovers. In the alternative, its eventual enforcement of the rule may provide clarity for advisors.