Optimizing Your Practice to Capture Rollovers

Judging whether conflict of interest rules permit an adviser to recommend rollovers—under both current law and the pending fiduciary redefinition—hinges on three important considerations.

By John Manganaro | March 28, 2014
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Jason Roberts, founder and CEO of the retirement services consulting firm Pension Resource Institute, explains rollover recommendations have long been on the Department of Labor’s (DOL) radar. For that reason he predicts advisers already serving as fiduciaries for retirement plan clients will likely not face a fundamental shift in the sorts of rollover recommendations that constitute prohibited transactions under the Employee Retirement Income Security Act (ERISA) when new fiduciary rules finally come through—though the fiduciary net may be widened to include more types of advice relationships.

The DOL could deliver new rules as soon as August, but observers say it is likelier the fiduciary redefinition will be delayed once again and will not be released until after the midterm elections, in late 2014 or early 2015. Other regulators, including the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) are kicking around rule changes of their own related to rollovers, cross-selling and fiduciary status (see “Some Advisers May Want to Pause on Rollovers”).

The regulators say they are examining whether emerging technologies and business models cause previously overlooked conflicts of interest. Concern about individual retirement account (IRA) rollovers in particular is growing, as an estimated $2.1 trillion is expected to flow from defined contribution (DC) retirement plans into IRAs in just the next five years (see “An Inside Perspective on Rollover Rulemaking”).

To get a sense of where they stand on the matter, Roberts says advisers should turn to the DOL’s 2005 advisory opinion that sets forth the department’s position on marketing additional services and products to plan participants and beneficiaries. The opinion points to three factors that advisers should be aware of while considering whether they face an inherent conflict of interest when recommending clients move money away from an employer-sponsored plan and into an IRA.