Capturing IRA Rollovers In A Changing Regulatory Environment - White Paper

Eliane Chavagnon

1 November 2013

As the Baby Boomer generation retires, advisors will need help managing the transition of billions of dollars from retirement plans into rollover IRAs, , a BNY Mellon company, says in a new white paper.

The white paper, Pursuing Rollovers in an Evolving Regulatory Landscape, looks at the anticipated regulatory changes that will affect the definition of a fiduciary. Specifically, it outlines that IRA rollovers are a “critical client need,” as well as an important part of advisory businesses.

Retirement plan distributions and IRA rollovers are increasingly regulated by the Department of Labor, which is currently working on expanding the definition of what constitutes “fiduciary advice.” The potential upshot is that more advisors could be subject to regulation by the Employee Retirement Income Security Act.

“Being knowledgeable of the current and pending regulations that will affect the definition of a fiduciary is essential for advisors,” said Robert Cirrotti, director of retirement solutions at Pershing. “These new definitions require advisors to understand when they are considered a fiduciary and when they are not.”

Advisors who are not currently fiduciaries can already help participants with distributions and rollovers. However, for those who are fiduciaries - or would become fiduciaries under an expanded definition – now is the time to sharpen their focus on what assisting clients with rollovers entails.

Pershing recommends the latter segment works on:

- Clearly defining the fiduciary services provided to a plan;

- Ensuring that the decision to take a distribution and to rollover an IRA is the participant’s decision;

- Offering clients educational materials regarding distribution alternatives and rollover services;

- Providing written disclosure of fees and expenses for the IRA and its investments, as well as the advisor’s compensation.

“If regulations change to expand the fiduciary definition, it will focus more attention on an advisor’s fiduciary status with regard to a plan or participant,” Pershing said. “Because it is not possible to predict what the rules will be once they are finalized, advisors should always consider their current practices based on the current regulatory environment until pending changes are clear.”

Debate

The arguments laid out in Pershing's white paper are reflective of broader controversy as regards the adoption of an expanded definition of fiduciary.

Dodd-Frank allowed the SEC to establish a uniform standard for advisors and broker-dealers providing personalized investment advice to retail customers. However, disagreements have delayed the process and the authority has yet to announce when, or if, it will proceed.

Many respondents to a recent survey claimed investors don’t have the information required to choose of the type of advisor or sales relationship they would like, and thus argue that clarification regarding the roles of intermediaries - through titles, firm purpose and disclosure - is needed.

Kathleen McBride, editor of the above-mentioned survey, previously said that this issue is critical not just for wealthy investors but for “investors of all stripes,” and especially for people saving for retirement. In fact, 79 per cent of respondents agreed that ERISA (Employee Retirement Income Security Act of 1974) fiduciary duty should cover advice on rollovers out of 401(k)s and IRAs.