In a statement made Monday in the runup to the June 30 compliance date for Regulation Best Interest (Reg BI), SEC Chairman Jay Clayton emphasized the need for “increased care” when recommending 401k/IRA rollovers and withdrawals.
While promoting a new SEC website page for “Main Street Investors,” Clayton noted that “Reg BI’s recommendations of rollovers of and withdrawals from retirement accounts “is one of its most significant enhancements over the status quo.”
Recommendations to retail investors to rollover or transfer assets from one type of account to another, or to take withdrawals from an account, should, therefore, be approached with care.
“Firms should be particularly attuned to their regulatory obligations in light of the additional flexibility Congress recently provided investors to take withdrawals from certain accounts,” he wrote, before referring to the Coronavirus Aid, Relief and Economic Security (CARES) Act.
The act allows eligible participants in certain tax-advantaged retirement plans to take early distributions of up to $100,000 during this calendar year without being subject to early withdrawal penalties and with an expanded window for paying the income tax they owe on the amounts they withdraw.
“By waiving early withdrawal penalties and other limitations tied to retirement accounts, Congress provided investors with substantial flexibility to access these plans in order to weather financial hardships related to the pandemic,” Clayton said. “However, to use that relief effectively, investors must navigate certain rules and make significant spending and investment decisions.”
Watchful eye
The SEC’s Office of Investor Education and Advocacy noted in a recent investor alert that some “promoters” are recommending that investors take CARES Act withdrawals or otherwise roll-over retirement funds to invest in products they are soliciting.
These recommendations are subject to Reg BI and firms should ensure that their policies and procedures meet the requirements of Reg BI, the Advisers Act and Form CRS, he warned.
“As we proceed to the June 30 compliance date for Reg BI and Form CRS, and as the effects of the pandemic on our markets continue, the Commission will continue to focus on the interests of our Main Street investors, and we remain committed to enhancing the quality and transparency of their relationships with their financial professionals.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
