A Fiduciary Duty for RIAs

Advisers need to educate retirement plan participants about their various rollover options. As a recent survey from Financial Engines found, 42% of 401(k) plan participants, ages 35 to 65, who had recently departed a job were unaware they could have left their account balance in the plan.

Twenty-eight percent were unaware that some retirement plan distribution choices trigger tax liabilities and penalties; 51% did not know it is possible to move money from an individual retirement account (IRA) into a 401(k) plan.

“Registered investment advisers [RIAs] have a fiduciary obligation to make sure their clients make rollover decisions that are in their best interest. And all financial advisers, regardless of whether they’re required to serve in their clients’ best interest, have an ethical obligation to share with their clients all of the options available to them,” says Ric Edelman, co-founder of Edelman Financial Engines and chairman of financial education and client experience at the firm.

Many of Ascensus’ financial advisers discuss rollover options with participants during enrollment meetings, says Ric Irace, the company’s chief operating officer (COO). In addition, “many financial wellness programs now include online videos and tools to help answer participants’ questions about rollovers and withdrawals,” Irace says.

To make rollovers or transfers more efficient, eMoney Advisor LLC offers this service to its participants via an automated, online system, says company Senior Financial Planning Analyst, and Certified Financial Planner®, Brett Tharp.

Financial Architects Inc. offers the same type of service, with its system requiring participants to proactively acknowledge that they have read about their various options, says Larry Steinberg, the firm’s chief investment officer (CIO). “With paper forms, they are unlikely to read them and have no clue as to what they are signing.”

For this reason, Unified Trust Co. implemented a digital rollover solution on its platform, says Diana Jordan, senior retirement plan consultant at the company. The choices it offers participants include working with an adviser or a digital adviser, she says.
Besides failing to invest the money they have cashed out, within the 60-day window—participants’ most common mistake, the experts say—they also frequently forget the tax bill. The plan’s investment firm is required to withhold 20% of their balance in order to cover taxes, Steinberg notes.

“That 20% is just an estimate,” he says. Participants may not realize that they could need to pay even more.”

Finally, it would probably be helpful for advisers to know that once a participant accumulates $100,000 in assets, or is approaching retirement, he is more apt to want to work with an adviser, regarding rollover options, Steinberg says.