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Developing a Sound Rollover Strategy

There's good news and there's bad news on the IRA rollover front. The good news: The regulatory agencies and industry groups with jurisdiction over IRAs — the DOL, the SEC and FINRA — seem to be getting on the same page, diminishing the likelihood of conflicting mandates from multiple regulators. The bad news: They seem to be moving in the direction of the DOL's approach to rollovers, increasing the likelihood of yet another participant disclosure mandate.

In a workshop session at the 2014 NAPA 401(k) Summit March 25, a panel led by moderator Patrick J. Rieck, executive director of Morgan Stanley Wealth Management, addressed the key considerations for understanding the forces affecting the IRA rollover market today and developing an approach to capturing IRA rollovers that makes sense, especially in light of the changing regulatory landscape.

Panelist Tamara Cross, an assistant director for education, workforce and income security issues at the U.S. Government Accountability Office, reviewed the GAO's April 2013 investigation into providers' practice of handling IRA rollovers, which included investigators posing as participants to test providers' call center responses. In response to a question from the floor, Cross noted that GAO chose the 30 largest providers on the basis of their size, without breaking them out by business type (that is, RIAs, brokers dealers, etc.). As panelist Richard Schwamb of Merrill Lynch noted, this approach meant that it's likely that the providers' call centers did not service advisor-sold (and thus advisor-serviced) plans.

Cross noted that the GAO's recommendations included better education and a disclosure requirement. As one attendee noted, the industry's recent experience with fee disclosure requirements established the fact that requiring disclosures to participants is not an effective solution to problems involving complex products like IRAs.

Rieck characterized the issue facing plan advisors as "educate versus recommend" — that is, if you choose to recommend an IRA rollover, you must follow FINRA's directions. That will require collecting pertinent information from the individual. "The gist of the issue is to function as a retail financial adviser would," explained Pension Resource Center founder and CEO Jason Roberts. "Imagine yourself as not having a relationship with the individual, and having to fulfill the duty to educate that person and explain the pros and cons."

Roberts, who makes a business practice of hiring recently retired DOL field investigators as consultants in order to keep close tabs on what kinds of ERISA violations DOL examiners and others are looking for, indicated that the DOL's focus on IRA rollovers is still at the policy level. Rollovers are not a high-profile issue among DOL examiners at this point — though that may change, he said.

As sometimes happens, Rieck noted, the industry is responding to issues raised by the DOL, and adjusting their best practices to be more in line with what regulators are seeking. "The marketplace tends to do the right thing," he observed.

The panel offered these best practices for IRA rollovers:

• educate participants about all distribution options
• discuss the tax implications (e.g., Roth IRA, indirect rollover, age 55, age 59-1/2, NUA, etc.)
• diclose fees and any conflicts of interest
• compare investment options and services
• engage in long-term financial planning discussions

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