This month, the Financial Industry Regulatory Authority (“FINRA”) released a regulatory notice reminding member firms of their responsibilities concerning individual retirement account (“IRA”) rollovers and potential conflicts of interest. A conflict exists when brokerage firms have an economic incentive to rollover retirement assets into an IRA sold by the brokers. Consequently, FINRA is reminding brokers that they must evaluate whether it is in the clients best interest to transfer money from the client’s previous 401(k) Plan into an IRA rather, than having a client leave its money in the company plan. Failure to do so could constitute a violation of Rule 2111, relating to FINRA’s suitability rule.
The Regulatory Notice also warns member firms to be careful on how they market IRAs. According to FINRA’s release, “any recommendation to sell, purchase or hold securities must be suitable for the customer and the information that investors receive must be fair, balanced and not misleading.” [To this end], “the marketing of the IRA rollover services offered by the broker-dealer must be balanced by a discussion of other available options and how they compare to the IRA offered, particularly with regard to fees.” The release went on to urge FINRA members to educate representatives to understand the tax, fee and investment implications of a rollover so that this important information is analyzed and provided to clients at the point of sale.
FINRA also relayed that this area will be an examination priority for FINRA in 2014. With this is in mind, it is recommended that member firms review their policies, provide training and reminders to its representatives regarding suitability considerations for IRA rollovers and review all marketing materials for fair and balanced representations.
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