Concerned about the potential conflict of interests involvingindividual retirement account rollovers, the Financial IndustryRegulatory Authority issued an alert in December putting financialadvisers on notice to review their practices.

Specifically, FINRA urged broker-dealers to ensure that conflicts of interestdo not impair judgment about what is in the customer's bestinterest, the guidance read. FINRA also reminded investmentrepresentatives to neither confuse investors nor interfere withimportant educational efforts.

The potential for conflicts of interest run the gamut.

For instance, an investment adviser who recommends an investorroll over plan assets into an IRA may earn an asset-based fee as aresult, but no compensation if assets are retained in the plan,FINRA said. A financial adviser then has an economic incentive toencourage an investor to roll plan assets into an IRA that he willrepresent as either a broker-dealer or an investment adviserrepresentative.

Conflicts also may exist for firms and their associated personsthat are responsible for educating plan participants about theirchoices. For example, if an associated person receives compensationfor the number of IRAs that participants open at his firm, he or she has anincentive to encourage participants to open IRAs rather thanmaintain their assets in their plan, according to the FINRA guidance.

For credit unions and otherfinancial institutions, to ensure there are no conflicts ofinterest on IRA rollovers, the problems can be complex, said LeonLaBrecque, senior financial adviser and CEO of LJPR LLC, anindependent wealth management firm based in Troy, Mich., thatmanages $626 million in assets.

Plan participants are typically in no-load options that arecarefully screened by a plan consultant or administrator under afiduciary standard, LaBrecque told Credit Union Times.Often, referred parties are selling commission-based products, someof which have illiquidity and significant costs, he added.

“We've seen IRA rollovers with over 25% in illiquid privateREITs, that can't be sold and have depreciated substantially,”LaBrecque explained. “Similarly we've seen cases where annuityproducts are sold on a captive basis, where a better product isavailable through another provider, but a higher fee product isrecommended and sold. This problem carries over to creating asuitable portfolio for a retiree.”

Retirees may have been in target-based no-load funds or aqualified professionally managed plan at a 60/40 equity/fixed mix,and then are placed into an 80% equity portfolio, LaBrecquesaid. “The conundrum is how credit unions and otherinstitutions are expected to take these risks intoaccount. Possible solutions include some form of checklist ordue diligence on recommended providers, or a disclosure statementto credit union (members) relating to the situation,” LaBrecquesuggested, adding another possible path may be usingfiduciary-based advisers, who meet a fiduciary standard.

“A looming question will be how the credit union or otherinstitution views the customer, in a broker sense – suitability,conflicts of interest and fair dealing issues – or the fiduciarysense,” LaBrecque said. “Overall, the myriad of regulatory andtaxation issues make for a new set of issues to be addressed inretiree customers.”

In July 2012, FINRA said it launched its conflicts initiative to review firms' approaches to conflictsmanagement and to identify effective practices. Based on firms'responses to FINRA's conflicts review letter, in-person meetingsand a follow-up compensation questionnaire to develop certainobservations, the regulatory agency was able to come up with amyriad of potential conflicts of interest in a number of areasincluding IRA rollovers.

Read more: The regulatory benefits of third partybroker-dealers …

One of the benefits of a creditunion utilizing a third party broker-dealer, is that the broker-dealer is responsible foradhering to securities laws such as those promulgated by FINRA,said Tim Halevan, vice president and chief compliance officer forCUNA Brokerage Services Inc. in Madison, Wis.

As with all FINRA rules or guidance, the broker-dealer that isdelivering the financial services program and working with themember will have the appropriate policies and procedures in placeto meet any rules FINRA enacts, he noted.

Halevan said it should be noted that some of what FINRAdiscussed in its December communications was more guidance thanactual rule-making. As far as FINRA rules in general, CUNABrokerage has a program of supervision in place to ensure members are receiving the disclosures and advice that FINRArequires from those advisors that work with CBSI, he pointedout.

“We do this not only to meet the rules of the regulator, butalso because it is the right way to do business with our creditunion partners and their members,” Halevan said.

After performing proper fact-finding and due diligence, Halevansaid advisers most certainly can suggest a member seek out a creditunion person to help with an IRA. In addition, the advisermay believe, after performing the proper diligence, that he or shemay have some options for the member as well.

“Remember, an IRA is simply an umbrella, or a name of a certaintype of qualified account for retirement savings. It's whatgoes inside the IRA account that matters a great deal,” Halevansaid. “What type of 'investment' such as a CD or a mutual fund oran annuity might serve the member in order to help them meet theirfinancial goals – that's when it is important to determine who canhelp the member.”

If a CD is the better option, for instance, the adviser mightsuggest the member speak with someone at the credit union outsidethe financial services program, Halevan said. If maybe a mutualfund or an annuity is more appropriate, the adviser may have theseoptions to discuss with the member.

The IRA rollover market is a huge space for investments to move.One in 10 with at least $100,000 in investable assets is likely toroll over a total estimated $280 billion into IRAs in 2014,according to Investor Rollover Assets in Motion, a Cogent Reportsstudy from Market Strategies International.

While key life events such as changing employers and retiringremain the top triggers for initiating a rollover transaction,investors who are likely to roll assets report that their topcriteria when selecting an IRA rollover provider are low fees andexpenses, followed by an easy process, brand reputation and havingan existing relationship with the financial services company.

“Opportunities exist in this very competitive market for theproviders who acknowledge investor fee sensitivity and make iteasy, especially for existing customers, to transfer idleretirement plan assets into a Rollover IRA,” said JuliaJohnston-Ketterer, senior director and author of the InvestorRollover Assets in Motion study.

According to FINRA, IRAs account for about 28% of all U.S.retirement assets, which totaled $19.5 trillion at the end of 2012.Of this amount, IRA assets were $5.4 trillion, compared with $5.1trillion in defined contribution plans and $9 trillion in otherretirement plans. Approximately 98% of IRAs with $25,000 or lessare brokerage accounts.