How 401(k) Advisors Protect Themselves from Risk

There are defined next steps to becoming a fiduciary.

There are defined next steps to becoming a fiduciary.

Under the pending DOL fiduciary rule, any perceived recommendation for how to treat money rolling out of a retirement plan is a fiduciary act. The rule has emblazoned the line between providing information and providing advice. For 401(k) and defined contribution advisors, as well as wealth advisors, you may present options to an individual regarding their retirement plan without becoming a fiduciary.

But if you advise on what decision appears best for your client, you are accepting fiduciary responsibility. In fact, even recommending money stay in-plan is a fiduciary action.

If you become a fiduciary, there are a few logical next steps: adhere to “Duty of Care” standards, determine if there are any prohibited transactions involved, and if there are—determine which exemption you will employ. If the recommendation will result in new or increased compensation for the advisor there is an implied conflict and an exemption is needed.

While advisors will use more than one exemption for their book of business, the most common exemption is level fee. Additionally:

Like anything that appears complex, due diligence can be boiled down to a step-by-step process. To protect themselves from risk, top advisors benchmark their advisory fees and services, show clients how the recommended rollover option compares to what the client is receiving in plan, and they document client priorities and discussions during the decision making process.

This due diligence activity is built into a step-by-step process within Ann Schleck & Co.’s new IRA Fee/Service Reasonability Evaluator guide, available in the second quarter of 2017.

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