Several industry insiders worried that advisors were unprepared for the July 1, 2022, Prohibited Transaction Exemption 2020-02 (PTE 2020-02) enforcement deadline.
Yet initial results seem to confirm the regulation is working as the DOL intended.
Fiduciary Decisions (FDI) took a look using its Rollover Decision Support System (RDSS), its PTE 2020-02 compliance platform. It extracted the data from the July 1st enforcement date through Sept. 30, 2022, a 90-day window.
“The first thing to catch people’s eyes is that there was a lot of hesitancy around the advisor’s ability to gather the actual plan data from the investor,” Craig Rosenthal, FDI’s Chief Marketing and Administrative Officer, said. “In our analysis, 45% of the time, the advisor can grab the 404(a)(5) Participant Fee Disclosure statement from the investor. That’s much more than people anticipated.”
The regulation included the option for alternative data, and 55% of the time, they used FDI’s proprietary benchmarking data, Rosenthal added, speaking at the Wealth@wor(k) conference in Las Vegas last week.
Noting another statistic that “will be the subject of some,” the rollovers’ destination, he said they went towards the IRA 92% of the time, stayed in the plan 7% of the time, and rolled to a new employer 1% of the time.
“The 1% going to new employers is sort of expected,” Rosenthal explained. “If you have the chance to roll over and get some professional management from an advisor, why not do that? The 7% that stayed in the plan-the issue isn’t that they can’t get it out of the plan, rather it could be the cost, the investment options, or not wanting to take on an advisor, so we’ll see how it evolves.”
When asked if there is an active effort among employers to keep the assets of departing employees in the plan for better scale, he hesitated, claiming the need for discretion.
“I can answer your question directly: employers are in a quandary as to whether they want to maintain a relationship with somebody who’s no longer an employee. There are benefits to keeping the assets in the plan. The downside is they now have a relationship with somebody they no longer have a relationship with.”
The initial results of FDI’s RDSS analysis showed:
- Activity was equally split between unsolicited and recommended rollovers. However, in later weeks, recommendation activity was outpacing unsolicited activity, which could be an important trend.
- The total amount of dollars rolled over was equally split between unsolicited and recommended, thus, disproving the theory that unsolicited rollovers would be smaller dollar amounts.
- Rollover destinations summarized as 92% rolled into a new IRA, 7% stayed in their existing retirement plan, and 1% rolled into their new employer’s plan.
- When looking specifically at recommendations, 43% were plan-to-IRA, and 51% were IRA-to-IRA.
- As it related to gathering investor data to support a recommendation analysis, advisors were able to obtain actual data (participant statements and/or 404a-5 documents) for 45% of the rollovers. FDI’s proprietary plan benchmark data was used for 55% of the rollovers.
- FDI identified multiple cases where advisors processed multiple rollovers for the same investor. It points to advisors successfully aggregating assets at the investor level.
MORE INFORMATION ABOUT ‘THE ROLLOVER DECISION SUPPORT SYSTEM (RDSS)’ IS FOUND HERE
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.
