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Malico “frequently recommended” • Train on the new requirements of Reg the SEC’s Denver Regional Office, told
that the customer buy and then sell BI; don’t just put the requirements IA in an email.
a security, only to repurchase the in policies and procedures. The SEC is seeking comment on
same security weeks or even days • Make sure policies and procedures the plan.
later, according to the regulator. For reflect a “thoughtful approach” to The Strategic Plan for 2022-2026
example, between January and July evaluating the different risks by cus- states that the SEC intends to bring
2021, Malico recommended that the tomer product and business activity. “cases that matter to all parts of the
client buy and then sell shares of “Not every sale has the same degree SEC’s mission — whether it be decep-
the same biotechnology company six of risk associated with it,” Cook tive conduct by registered or private
separate times. said, so think about how to tailor the funds, offering or accounting frauds,
The SEC brought its first Reg firm’s approach “to the risks that are insider trading, market manipulation,
BI-related action on June 16 by charg- involved with their business activity.” failures to act in retail customers’ best
ing registered broker-dealer Western • Assess account type recommen- interests when making a recommenda-
International Securities Inc. and five dations or reasonably available tion, reporting violations, best execution
of its registered reps with violating Reg alternatives. and failure to act in accordance with
BI. The brokers violated best-interest • “Keep up with what the SEC the fiduciary duty, or any other form of
obligations when they recommended expects,” Cook said. “A lot of the misconduct.”
and sold an unrated, high-risk debt secu- rule is principles-based; the SEC The language regarding failure to
rity known as L Bonds to retirees and has been coming out with addi- act in retail customers’ best interest
other retail investors, the SEC said. tional guidance.” “indicates the SEC is ready to move
When speaking of the agency’s first The SEC said in late August that it beyond basic compliance and disclosure
Reg BI enforcement action in mid- intends to shift its enforcement focus obligations to scrutinize the placement
July, the SEC’s enforcement director, regarding Regulation Best Interest to of retail investors’ funds in advisory
Gurbir Grewal, told members of the “making a recommendation,” according versus brokerage accounts, whether
House Financial Services Committee to the agency’s draft strategic plan for complex or risky products were offered
that the agency’s exam division has the next four years. to those investors, and registered
made “other referrals.” “I think it’s significant that the representatives’ consideration of
Strategic Plan explicitly references the costs,” Gottschall said. “Broker-dealers
REG BI COMPLIANCE agency’s intention to enforce Reg BI in should pay particular attention to their
On Nov. 4, Cook offered the following the context of ‘making a recommen- compensation arrangements with
areas where firms can improve their Reg dation,’” Kurt Gottschall, a partner in registered representatives to evaluate
BI compliance: Haynes Boone, and a former director of incentives and resulting conflicts.”

New House Bill Allows Automatic 401(k) Rollovers
Rep. Brad Schneider, D-Ill., introduced legislation in early The bill, Saxon added, also “reduces [DC plan] leakage by
November, the Advancing Auto-Portability Act of 2022, making it easy for an individual to manage all their retirement
to allow for seamless transfer of retirement accounts from assets in one place.”
employer to employer. The bill is intended to reduce early According to the bill’s text, up to $105 billion of retirement
cash-outs of defined contribution plan assets — leakage, in savings “leaves the defined contribution pension plan system
industry parlance. annually because employees cash out their savings after a
The bill, H.R. 9252, amends the Internal Revenue Code to job change.”
provide incentives for the use of automatic portability arrange- Sens. Tim Scott, R-SC and Sherrod Brown, D-Ohio, intro-
ments under defined contribution plans, and for other purposes. duced companion legislation earlier this year, the Advancing
Steve Saxon, principal at Groom Law Group in Washington, Auto-Portability Act of 2022, to allow a worker’s 401(k) to
told IA in an email that Schneider’s legislation “enables be automatically rolled over from a previous employer to a
recordkeepers to link up electronically so that an individual new employer.
can locate all of their various small retirement account bal- The bills may be included in the Secure Act 2.0 retirement
ances and move them seamlessly into their retirement legislation that’s expected to pass during the lame-duck ses-
account at their new employer.” sion of Congress. —MW

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