As you all (hopefully) know, there are some new rules regarding rollover recommendations—notably the requirement to document—in writing—why a rollover is in the participant’s best interest. This week we asked readers to weigh in on their rollover “readiness.”
Though the volume of responses was a bit lower than normal this week, three-fourths (76%) of them currently do rollovers. But then, nearly all (96%) of the respondents say that others at their firm do rollovers.
And then—harkening to the reality that under the provisions of PTE 2020-02, we asked readers if they had started documenting—in writing—the best interest justifications for doing so. Fortunately, the vast majority had—a quarter (24%) since the July 1 deadline—and the rest prior to that deadline.
With the new documentation requirement in place, we concluded by asking readers how they have found that requirement to be—allowing for multiple responses.
“Painful” was the most common response, but “helpful” was a not-so-distant second. Other comments were “Instructive,” “Unnecessary,” and “Useless.”
“While helpful and instructive the documentation does not really address the fiduciary process and the IPS that will be used to manage the account. Clients are already overwhelmed with various disclosures and documentation for the ADV, Reg BI, CRS, etc. Then going through basically a checklist just makes the set-up process longer,” explained one reader.
Other Comments
“Conceptually, it’s important because of the bad actors still at-large,” noted another. “In the end, the whole class is punished and has to write their spelling words 10x each for the shenanigans of one or two playground bullies.”
“Unnecessary but helps keep a similar process across the team.”
“It is an adjustment to gather some of the information needed prior to initiating a rollover but our firm has always served as a fiduciary, so this is not a novel concept at the firm level.”
“I believe it will be used long term for class action lawsuits--it’s a gift to the plaintiff class and insurance/retirement providers to keep assets.”
“A necessary evil—is there a middle ground?”
“Personally, I’d like to see a different template for recommending plan to plan rollovers, and for SIMPLE-IRA to plan rollovers.”
“As per usual, the ‘intent’ of Congress ends up in more paperwork that the client does not want to mess with. I believe we will have trouble getting them to provide 404a5 and/or statement copies. It puts the onus on the client.”
“My belief is that if you are ‘the right kind of advisor’ then WRITING the reasons for your recommendation is a non-issue. It helps your client understand the why. Doesn’t make it any less ‘painful’ to have yet more forms to complete, but overall it is the right thing to do.”
“I think providing disclosures is great and strongly support that, but it seems like all of the documentation that is trying to be done, could be simplified into a broad disclosure that do you want to rollover the assets and do you understand that it will likely cost more than if left in the plan. The focus seems to be more on cost, rather than most rollovers are triggered by the client prospect who has a triggering event and/or wants to work with an advisor or firm to help them rather than keep the assets in the plan to manage themselves.”
“Oftentimes rollovers help participants consolidate accounts and simplify their lives. Cost is so important here, since rolling out into an IRA often drastically increases a participant’s fees unnecessarily.”
“Overall, I feel that no matter the what the positive attributes of a potential rollover are, the transaction is frowned upon or discouraged if it costs the client a penny more than remaining in the qualified plan.”
“What is a challenge for us when documenting the fiduciary recommendation is that in most cases the client has made a choice on their own that they want to engage us. So technically, a fiduciary recommendation and the client’s desire may not be aligned. We document those cases but it will be interesting to see how that holds up to examinations.”
Thanks to everyone who contributed to our weekly NAPA-Net Reader Radar poll!
