Compliance February 17, 2011

FINRA Slaps Lincoln Companies with $600K in Fines

Inadequately protecting confidential customer information was the reason behind the fines.
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The Financial Industry Regulatory Authority (FINRA) brought the fines against Lincoln Financial Securities, Inc. (LFS) and Lincoln Financial Advisors Corporation (LFA). A FINRA news release said LFS was sanctioned for not forcing brokers working remotely to install security software on their personal computers used to conduct firm business. FINRA said LFS was fined $450,000 and LFA $150,000.

FINRA and the Securities and Exchange Commission (SEC) require broker/dealers to safeguard customer records and information.

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From 2002 through 2009, between the two firms, more than one million customer account records were accessed through the use of shared user names and passwords, FINRA said. Since neither firm had policies or procedures to monitor the distribution of the shared user names and passwords, they were not able to track how many, or which employees, gained access to the site during this period.

As a result of the weaknesses in access controls to the firms’ system, confidential customer records including names, addresses, social security numbers, account numbers, account balances, birth dates, email addresses and transaction details were at risk, FINRA charged.

FINRA alleged the Web-based system both firms used combined non-public customer account information from various sources and allowed employees to view the customer account information within a single site. Home office personnel from both firms could access the system either by clicking on a link on the firm’s Web site or could gain access through any Internet browser by going directly to the system’s Web site and logging in with one of the shared user names and passwords.

FINRA also found that LFS and LFA did not have procedures to disable or change the shared user names and passwords on a recurring basis even after a home office employee had been terminated. Many individuals left the two firms during the time period involved in the charges, yet the shared user names and passwords were never changed, and the firms had no way of determining whether former employees continued to access confidential customer information using those same user names and passwords. 

In settling these matters, LFS, based in Concord, New Hampshire, and LFA, based in Fort Wayne, Indiana, neither admitted nor denied the charges, but agreed to the entry of FINRA’s findings.

Data & Research February 17, 2011

Fidelity Sees Spike in Roth IRA Conversions

Fidelity Investments reports that nearly one-third of its Roth IRA Conversions executed across its retail and adviser businesses in 2010 occurred during the month of December.
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Approximately 220,000 total Roth IRA conversions were completed in 2010, which represents more than a fourfold increase over 2009, the company reports.  

Awareness of the Roth IRA conversion opportunity has increased dramatically. A recent Fidelity survey of investors found a 25-point jump (40% vs. 15%) in awareness when compared to a similar study conducted in August 2009. This surge in awareness coincides with an increase in the number of investors who are looking for ways to minimize taxes in retirement (52% vs. 47%).   

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Of the households that completed a Roth IRA conversion in 2010, 58% were customers age 50 or over.   

The announcement said more than 197,000 Fidelity Roth Conversion Evaluator sessions were completed by investors and advisers in 2010, with 260,000 sessions since the calculator’s launch in October 2009. Visitors to Roth IRA conversion content on Fidelity.com nearly quadrupled in 2010, when compared to 2009; 62% of Roth IRA conversions in 2010 were completed online.

(Cont...)

In-Plan Roth Conversions  

A provision passed in late September 2010 allowing in-plan Roth conversions for certain eligible workers in a workplace savings plan with Designated Roth Accounts (see "Over Roth?") has resulted in growing demand by Fidelity plan sponsor clients for the Roth 401(k) offering and the conversion opportunity, according to a Fidelity press release.   

As of December 31, 2010, 50% of large Fidelity-administered workplace savings plans now offer a Roth 401(k). Of those plans that offer a Roth 401(k) provided by Fidelity, approximately 7% currently now offer the ability to convert assets from non-Roth accounts within their plan.   

Results of a Fidelity survey mirror the business activity. More than half (53%) of workplace plan participants surveyed who had heard of a Roth 401(k) said their employers offer it as an option. Of those who indicated a Roth 401(k) was available within their plan, almost three-quarters (71%) were not sure if their employer offered the ability to convert existing assets to a Roth account within their workplace savings plan.

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