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Case of the Week: Advisors’ Considerations for Rollover Discussions

The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with a financial advisor in Louisiana is representative of a question we commonly receive related to financial advisors and rollovers. The advisor asked:

“When a client is facing the decision of what to do with his or her qualified retirement plan assets (i.e., leave them behind, distribute them or roll them over), what considerations do I have as his or her financial advisor?”

Highlights of Discussion

• You ask a very important and timely question. We have some historical guidance that applies at this point, and some potential new guidance expected from the Department of Labor (DOL) later this year on this issue.
• When a financial advisor discusses distributions of qualified retirement plan assets with clients, the potential exists for a conflict of interest to arise, which could lead the advisor to be involved in a prohibited transaction. Therefore, there are several key issues financial advisors should consider.
• Regarding present guidance, Department of Labor Advisory Opinion 2005-23A specifies that if a financial advisor is not already a plan fiduciary, then making distribution or rollover recommendations to plan participants would not make the advisor a fiduciary, even if investment recommendations are included.
• However, if a financial advisor is already a plan fiduciary, then making distribution or rollover recommendations to plan participants would subject such recommendations to a fiduciary standard and, therefore, could give rise to conflicts of interest and, potentially, prohibited transactions.
• With respect to potential new guidance, when the DOL released its proposed investment advice fiduciary regulations in 2010 (which it later rescinded in 2011), it requested comments “ … on whether and to what extent the final regulation should define the provision of investment advice to encompass recommendations related to taking a plan distribution.” It is anticipated that when the DOL releases its new proposal, it will address the issue and seek comments from the industry before it issues final regulations.
• In the meantime, the SEC and FINRA have weighed in on this issue as well. The SEC has put retirement vehicles and rollovers on its National Exam priorities list for 2014. FINRA has released Regulatory Notice 13-45, describing IRA rollover best practices for broker-dealers, and an investor alert: The IRA Rollover: 10 Tips to Making a Sound Decision. FINRA Notice 13-45 reminds firms of the suitability standard that applies when: (1) recommending a rollover or transfer of assets in an employer-sponsored retirement plan to an IRA; or (2) marketing IRAs and associated services. Reviewing firm practices in this area will be an examination priority for FINRA in 2014 as well.


Given the degree of scrutiny on IRA rollovers, financial advisors may want to consider taking the following steps.

1. Review existing rules and best practices suggested by the DOL, SEC and FINRA.
2. Evaluate current practices in light of known and anticipated guidance.
3. Identify gaps and possible corrective measures.
4. Document the review and agreed upon practices.
5. Stay current on new developments.

The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. ©2014 Columbia Management Investment Advisers, LLC. Used with permission.