SEC Focuses on Conflicts of Interest in Senior Counseling

The headquarters of the U.S. Securities and Exchange Commission (SEC).

SAUL LOEB | AFP | fake images

The Securities and Exchange Commission will investigate conflicts of interest in financial advice this year more vigorously, at a time when market conditions may lead brokers to take advantage of clients more frequently, the federal agency said Wednesday. .

The financial regulator will prioritize fraud, sales practices and disputes between financial advisers and brokers, the SEC said in its annual review priority list, which outlined its 2021 oversight agenda for such firms.

Its objective will be to protect especially against conflicts that harm the elderly and the savers for retirement.

“Recent market volatility and industry pressures have impacted fees and other revenue collected by companies,” the agency wrote. “These conditions can cause increased financial stress on companies and their staff, which, in turn, can lead to an increase in cases of fraudulent conduct.”

Rollovers and account types

Financial conflicts of interest can take many forms.

A broker may, for example, try to sell a mutual fund or annuity with a higher commission than another similar investment but which may not be the most suitable for the client.

The SEC will focus on recommendations to clients in areas such as account type (for example, an account that generates commissions rather than fixed annual fees) and rollovers, from a 401 (k) plan to an individual retirement account.

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It will also analyze companies’ sales practices for various types of investment such as structured products, exchange-traded funds, real estate investment trusts, private placements, annuities, digital assets, municipal and other bonds, and micro-capitalization securities, the said. agency.

In addition, it will examine brokerage firms to assess whether they are meeting standards regarding giving retail investors access to complex strategies such as options trading.

Best interest regulation

Brokers have long operated on a different legal playing field than financial advisers.

Financial advisers have a fiduciary duty to provide advice that is in the best interest of the client, while brokers have a less stringent obligation.

(Although, perhaps contradictory, some brokers may legally call themselves “advisers.” And many may choose when to trade as one or the other.)

The SEC issued a rule, the best interest of regulation, in 2019 to reduce such conflicts of interest in financial advice.

While it has prompted many brokerage firms to change their behavior (by not allowing the sale of certain investments, for example), investor advocates think that it still allows brokers to give conflicting advice to clients.

The SEC will also focus its examinations on brokerage firms’ compliance with regulation, known as Reg BI. Previous reviews had focused on the processes companies used to implement the rule; In 2021, the SEC will expand the scope of its scrutiny, the agency said.

The number of advisory firms supervised by the SEC has grown significantly in recent years, to nearly 14,000, up from 12,000 five years ago. At the same time, client assets grew by around $ 30 trillion, to $ 97 trillion.

The SEC completed about 2,950 reviews of financial advisory firms last year, a 4% drop from 2019 that is largely attributed to the impact of the Covid pandemic, he said.

Conflicts of interest were among the top review priorities for the SEC this year. The agency also focuses on other topics such as climate risk, information security, financial technology and the fight against money laundering.


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