Just as location, location, location is often said to be the key to good real estate, rollover recommendations have their own mantra: document, document, document.
Here are some factors, based on checklists used by advisers and suggested by legal experts, to consider when deciding whether or not to recommend a client roll their workplace retirement plan into an IRA.
Fees: What are the fees in the 401(k)? What will they be in the IRA? Importantly, evaluate the fee that the adviser will charge, which is not a cost that was associated with the company plan.
Total annual expenses: Does the employer pay the plan's administrative expenses?
Investment advice: How comprehensive was the investment advice from the employer program? Will the adviser provide a wider array of services, such as financial planning?
Investment choices: Is there more breadth and depth to the company plan or the proposed IRA?
Asset allocation: Does one plan make it easier to change allocations as the market dictates?
Situational assessment: How old is the client? What makes the most sense for her to do at this point in her career/life?
Once the options have been parsed:
• Explain to the client why a rollover is or is not in her best interest.
• Write down the factors weighed.
• Give a copy of the recommendation to the client and file a copy for yourself.
Advisers will need to demonstrate their reasoning about why they chose to move retirement funds if questioned down the road — either by regulators or by upset clients in a market downturn.