401(k) rollovers could slow to a trickle, one of the many consequences of the Department of Labor’s proposed fiduciary rule slated to occur as early as next week.
The Wall Street Journal notes the new rule will make it harder for advisors to recommend a 401(k) to IRA rollover upon a participant’s retirement, as they will have to clearly document why it is in a client’s best interest.
“Additionally, once the money is in an IRA, [advisors] would generally have to avoid payments, including commissions, that create incentives for them to select one product over another,” the paper writes. “[Advisors] to individuals typically have an incentive to recommend rollovers, since they stand to earn fees or commissions on the dollars shifted to IRAs.”
IRAs hold an estimated $7.3 trillion of the nation’s $24 trillion in retirement assets, more than the $6.7 trillion in 401(k)-type plans. It quotes a Cerulli Associates figure that finds rollovers are expected to amount to $439 billion this year, up from $271 billion in 2010.
“Experts say more [advisors] may think twice under the coming rule before recommending transfers that result in higher fees. As a result, more money may stay in employer-sponsored plans, especially large plans that leverage their size to negotiate low institutional rates.”
“We’ll definitely see fewer rollovers,” the paper quotes Jason Roberts, a pension-law attorney and chief executive of Pension Resource Institute, a compliance consulting firm, as saying. Because advisors will have to research clients’ needs better and document why recommendations are in their interests, “you may see recommendations that are being made today not being made in the future.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of 401(k) Specialist and Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots. Experienced financial services content executive specializing in creative new media delivery. He joined the American Retirement Association in 2023 as Chief Content Officer, overseeing communications for the organization, as well as its sister organizations.
