Good News for Fiduciary and 401(k) Rollovers

401(k) fiduciary regulation won't do the damage once thought.
401(k) fiduciary regulation won’t do the damage once thought.

Whoa—what’s this? A bit of good news on the 401(k) fiduciary front?

For those advisors doing it right who might be worried about the effect of the DOL’s fiduciary rule on rollovers, fear not.

Boston-based research and consulting firm Cerulli “does not anticipate a slowdown in rollover activity in the foreseeable future.”

The reason? Broker-dealers are prepared and certain 401(k)s don’t allow for partial withdrawals. This combination of preparation and need should mean a continual flow of rollover business no matter DOL action.

“First, even before the DOL announcement, broker-dealers (with large advisor forces) were adapting their businesses away from commission and proprietary products to fee-based, fiduciary business models,” said states Bing Waldert, director at Cerulli, on Monday. “The industry may continue to see low-end consolidation of advisors and BDs not equipped to deal with sweeping regulatory changes, but firms of scale will continue their business with relatively little disruption.

“Second, some DC plans are not designed to accommodate partial withdrawals from separated or retired participants,” Waldert continued. “Therefore, at retirement, it may be in an investor’s best interest to roll over their accumulated retirement balances to maintain maximum flexibility in retirement income planning.”

Waldert added that still rules regarding 401(k) withdrawals for retirees another reason Cerulli is optimistic about future rollover activity.

“Until retirement income options become more readily available inside DC plans, IRAs will continue to be the primary consolidation vehicle for retirees, regardless of an evolving regulatory environment,” added Jessica Sclafani, associate director at Cerulli.

Cerulli research shows that just 21% of large 401(k) plan sponsors report having adopted an in-plan retirement income product. While interest and willingness to discuss in-plan retirement income products are growing, obstacles remain to more widespread adoption.

John Sullivan
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of 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.

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