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Compliance

Some Advisers May Want to Pause on Rollovers

How participants deal with their 401(k) assets when they leave a company is under more scrutiny from FINRA, but retirement plan advisers are less likely to be affected by the guidance.

Calling this a moment of heightened importance and vulnerability, the regulatory authority notes that investors are making a financial decision regarding decades of savings that may be needed for retirement income for many years. Rolling over these savings into an individual retirement account (IRA) is fairly common. FINRA has already stated that firm practices surrounding IRA rollover services will be a priority for 2014

FINRA pointed out in its recent guidance that more than 90% of funds flowing into traditional IRAs came from retirement plan rollovers, according to the an Investment Company Institute Study. The Government Accountability Office (GAO) took the Department of Labor (DOL) to task in a report issued in April, which said that plan-to-plan rollovers should be made as simple as rollovers into an IRA. The DOL’s requirements could do more to help participants understand the financial interests that service providers may have in participants’ distribution and investment decisions, the GAO said.

Retail securities brokers who are not involved in the participant’s 401(k) assets or prior plan arrangement will feel some impact from the guidance, according to Bob Lawton, founder and president of Lawton Retirement Plan Consultants LLC. “This is going to hurt the average investment adviser at a large company because a large portion of their earnings comes from rollovers,” Lawton tells PLANADVISER.

Roberta Ufford, a principal at Groom Law Group, agrees it is likely to be a bigger change on the individual retail adviser side, in part because guidance issued under the Employee Retirement Income Security Act (ERISA) already place some restraints on fiduciary advisers.

Jill Cornfield editors@plansponsor.com