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Rollovers on the Menu for Media, Lawmakers and Consumer Advocates

Rolling a 401(k) account into an IRA is not only a popular choice for most participants, for some it’s the only option they have. As illustrated by a July 18 CNN article highlighting the issues and potential dangers associated with rollovers, the general media is definitely paying attention. 

They’re not the only ones. Consumer advocates are raising questions about some of the rollover practices of major firms. The DOL, GAO and FINRA are concerned too, generating numerous investigations, reports and rules. And some are predicting that Congress will get involved, especially with the growing influence of Sen. Elizabeth Warren (D-Mass.), who is a staunch consumer rights advocate. Warren helped create the Consumer Finance Protection Board (CFPB), which is also likely to weigh in on the issue.

The media, state and federal lawmakers and consumer groups are likely to focus more on retirement issues in general, but especially IRAs, because of the size of the market — more than $6 trillion and growing — and concerns that there is not enough oversight. These concerns focus on fees, transparency and potential conflicts of interest. Last year, for example, GAO undercover investigators posing as job changers found that IRA service providers gave misleading and inaccurate information about fees. And FINRA gave notice late last year about the need for its members not just to police the suitability of the investments offered in rollovers, but also whether it would be better for individual investors to keep their money in their current plan.

The IRA issues could substantially change the DC business in many ways:

  • If less money is rolled over, more money would stay in corporate plans — which might lead to a greater focus on retirement income. 
  • If providers are considered fiduciaries, they will have a harder time soliciting rollovers under the proposed DOL fiduciary rule.
  • If BDs need to ensure that rollovers are suitable, there might be fewer advisors who are able to work on IRAs — which might be an opportunity for plan advisors.
Stay tuned — this issue is not going away, especially with mainstream media outlets like CNN focused on it.

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