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IRA Rollover traps under new DOL Fiduciary Rule?

Saturday, August 19, 2017

IRA rollovers are generally an important component of many advisors’ business model. Now, could some of these rollovers be caught within the potentially confusing boundaries of the DOL Fiduciary Rule?

Advisors should proceed with caution when discussing even a client’s existing retirement assets in order to comply with the rule. Some may prefer to avoid it entirely however discussions regarding potential retirement account rollovers need not be avoided. Advisors must exercise care in remaining compliant with the rule’s mandates in order to avoid potential liability.

Effective June 9th, advisers to retirement plans and IRA account holders are fiduciaries and must comply with the “impartial conduct standards.” That means they must give advice that’s in the best interest of the investor, charge no more than reasonable compensation and make no misleading statements.

To act prudently under this new rule, the advisor should evaluate the existing IRA and compare it to the IRA that could be offered by his or her own firm. The rule requires that the firm have policies and procedures in place in order to complete this evaluation. One should be sure to take into account the value of services that can be provided by the firm, investments offered by the plan and expenses associated with both plans. Advisors should be mindful to make no misleading statements and ensure that he or she receives no more than reasonable compensation. When it comes to 401(k) to IRA rollovers, advisors should note whether the employer sponsoring the 401(k) pays a portion of the expenses associated with the account.

The full force of the new DOL Fiduciary Rule is currently in limbo. The Labor Department has proposed extending the January 1, 2018 applicability date of its fiduciary rule by 18 months to July 1, 2019. This includes the best interest contract exemption, class exemption for principal transactions in certain assets between investment advice fiduciaries and employee benefit plans and IRAs and the Prohibited Transaction Exemption 84-24, which deals with annuities. However, remember, the “impartial conduct standards” are in force and firms need to be prepared to meet these obligations.

If you need any assistance navigating these confusing DOL rules and their compliance implications, let Red Oak help you.

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