How 401k Advisors Protect Themselves from Risk

Fully 83 percent intend to use the level-fee exemption.

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 401k 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:

  • 41 percent of advisors say they’ll use level fee for all their business and 42 percent indicate they will frequently or occasionally use it.
  • The Best Interest Contract Exemption (BICE) will be used for all clients for 9 percent of advisors and 42 percent will use it frequently or occasionally.
  • Other exemptions employed include grandfathering, sophisticated investor and to avoid becoming a fiduciary altogether.
  • 77 percent of advisors indicated they will never avoid being a fiduciary, but 18 percent are still unsure.

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.

But it won’t be published until there is enough data to show trends. The short survey is open and advisors are telling the research team at Ann Schleck & Co. about expectations for the future along with fees, products and services for their last 10 rollovers. Spend 15 minutes completing the survey: LINK  In exchange, you’ll receive a complimentary executive summary of the results and an invitation to an exclusive webcast. The information you provide will be kept strictly confidential and used collectively for comparison purposes. Learn more on the survey landing page: LINK

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