Reported Wells Fargo-Financial Engines deal may ease rollover harvest — for now, say experts

The relationship could work well for non-fiduciary reps who service retirement plans, but that would change if the DOL's fiduciary rule proposal passes in its current form

May 28, 2015 @ 12:40 pm

By Darla Mercado

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A reported alliance between Wells Fargo and retirement plan robo-adviser Financial Engines Advisors may make it easier for Wells to harvest rollovers — at least for the time being.

Reuters last week reported that Financial Engines is nearing a deal to provide web-based investment advice to the 3.8 million participants in 401(k) plans that Wells Fargo & Co. provides recordkeeping services.

Spokesmen for Wells Fargo and Financial Engines did not comment on the report.

Nevertheless, such an arrangement would put a little more distance between Wells Fargo reps who work with 401(k) plans on the firm's platform and the capture of rollovers from employees who leave their employers.

At least that's the case under the Department of Labor's current regulatory regime.

"If a non-fiduciary financial adviser with a broker-dealer makes a recommendation to a participant to take a distribution and roll to an IRA — that would not be a fiduciary act and would not be subject to the fiduciary prohibited transaction rules under current law," according to Fred Reish, a partner at Drinker Biddle & Reath's employee benefits and executive compensation practice group.

"One way to do that is for the affiliated record-keeper to use third-party investment advisers for the selection of plan investments and for giving investment advice to participants," he added.

That guidance goes back to a 2005 advisory opinion from the DOL, which spells out the responsibility of plan fiduciaries.

Most notably, it also addresses the issue of whether a non-fiduciary rep is engaging in a prohibited transaction if he or she collects fees for recommending that the participant withdraw from the plan and invest in an IRA. For now, the answer is "no," that act isn't a prohibited transaction for a non-fiduciary rep.

From a practice management point of view, having such an arrangement — where professional management capabilities are available to plan participants via a third party — works well in favor of non-fiduciary reps who service retirement plans. It allows them to focus on plan metrics that make a difference, and it gets them away from the more dangerous conversation of participants' investment allocation.

"Now, the rep who serves the plan can immediately shift the conversation away from allocation to goals, gaps and deferrals, and that motivates additional savings," Jason C. Roberts, CEO of the Pension Resource Institute, said. "The broker-dealers are pleased to see that; it puts the rep in the green zone."

That all could change, however, if the Department of Labor's fiduciary rule proposal passes in its current form.

"The [fiduciary] rule we're looking at now will put everyone in the red zone, including advice concerning the rollover and distribution and advice on the reinvestment of those proceeds," Mr. Roberts added. "Those are fiduciary acts [under the new proposal]."

Additionally, plan fiduciaries need to remember that the mere selection of that third-party adviser to oversee participants' accounts is still a fiduciary act, noted Marcia Wagner, managing director of The Wagner Law Group.

Nevertheless, the reported pairing is a sign of the times as recordkeepers face a wave of retiring baby boomers who'll begin pulling money from their retirement plans.

"Everyone is trying to figure out the answer to the $600 billion question: How do you retain rollovers?" Ms. Wagner said. "The boomer population is aging, and there's been great accumulation in 401(k)s, but over time people will retire and need access to the money."

"The name of the game is how to retail these assets and not run afoul of the prohibited transaction rules," she added. "Anyone who can solve that has found the Holy Grail, both legally and financially."

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