Suitability
Investment selection for a retirement plan should be guided by suitability rules meant to ensure an investment strategy or choices meet the objectives and means of plan participants. Investment advisors to retirement plans are subject to suitability rules under the Uniform Securities Act and the Investment Advisors Act of 1940.

The following practices are examples of violations of the suitability rules:

  • Recommending securities without having a reasonable basis for the recommendation.
  • Recommending securities without taking the client's financial situation, needs and objectives into account.
  • Recommending the same security to all clients.

The Investment Advisors Act of 1940 also defines "failure to meet suitability standards" as an unethical practice.

An investment advisor who does not make reasonable inquiries or suitable recommendations, given the information from such an inquiry, is guilty of violating the suitability requirements.

Time Horizon
The time horizon of employees – how long until they reach their retirement age – should also be a consideration for selection choices within an employer-sponsored retirement plan. A defined contribution plan should include choices appropriate both for those near retirement age and for younger employees who can handle an appropriate level of investment risk.

Diversification
A defined contribution plan should include sufficient investment choices to allow a participant to construct an appropriately diversified portfolio that depends on age, risk tolerance, income level and other factors.



Unrelated Business Taxable Income and Life Insurance

Related Articles
  1. Investing

    Investment Suitability 101

    This a fundamental concept from both a legal and practical perspective.
  2. Managing Wealth

    RIAs and Brokers: What's the Difference?

    RIAs and brokers are held to different standards when providing investment advice. Here's how they differ.
  3. Financial Advisor

    Should You Change Your Retirement Portfolio?

    The government's new fiduciary rule is a reason to look hard at your retirement savings and consider replacing those that wouldn't pass muster now.
  4. Financial Advisor

    5 Tips for Those 5 Years Away from Retirement

    Whether helping a new client or working with long-time clients, here are five financial planning tips for those within five years of retirement.
  5. Financial Advisor

    Retirement Planning Tips for Clients in Their 50s

    Here are three ways financial advisors can help 50-somethings plan for retirement.
  6. Financial Advisor

    Top Retirement Prep Questions to Ask Clients

    Is your client really ready for retirement? Here are some essential questions to ask.
  7. Financial Advisor

    Impact of Proposed DoL Rules on Financial Advisors

    The DoL had proposed rules that would have a major impact on financial advisors. If they are approved here's what it would mean.
  8. Financial Advisor

    Retirement Savings Strategies for Clients in Their 40s

    Here are five ways 40-somethings can plan ahead for retirement.
  9. Retirement

    Enticing Retirement Plan Participants to Save

    Getting participants interested, educated and enrolled in their retirement plan is the first step to long-term saving for a comfortable retirement.
  10. Financial Advisor

    Retirement Tips for Financial Advisors

    Learn some valuable tips that financial advisors are using to successfully transition from practice to financially secure retirement.
Frequently Asked Questions
  1. Where else can I save for retirement after I max out my Roth IRA?

    The first option to explore is to determine if you can contribute to a 401(k), 403(b), or 457 plan at work. If your employer ...
  2. How did George Soros "break the Bank of England"?

    In Britain, Black Wednesday (September 16, 1992) is known as the day that speculators broke the pound. They didn't actually ...
  3. What counts as "debts" and "income" when calculating my debt-to-income (DTI) ratio?

    It's important to know your debt-to-income ratio because it's the figure lenders use to measure your ability to repay the ...
  4. Who are Monsanto's main competitors?

    Learn about Monsanto Company's two main operating divisions and its main competitors within each sector, including The Mosaic ...
Trading Center