Advisers can snag accounts, they just can't pitch for them
Contrary to conventional wisdom, 401(k) fiduciary advisers can obtain rollover business from their plans. The key? A process that helps them steer clear of prohibited transactions.
That was the theme of a seminar at the American Society of Pension Professionals & Actuaries' annual 401(k) Summit in Las Vegas. Marcia Wagner, panelist and managing director at The Wagner Law Group, broke down the do's and don'ts of getting IRA rollovers from participants in plans overseen by fiduciary advisers.
At face value, the Labor Department's 2005-23A advisory opinion is fairly ominous, noting that plan fiduciaries are committing a prohibited transaction if they advise account holders on rollover assets. But interestingly, the advisory opinion also footnotes a Supreme Court case. In that decision, the justices found that an individual could serve the same plan as both a fiduciary and a non-fiduciary
Thus, advisers looking to collect rollovers need to draw the line when they are not acting as a plan fiduciary, noted Ms. Wagner. When an adviser is working as a plan fiduciary, for instance, and is at the work site, that adviser can talk about the availability of IRA rollovers — but not the advisability of them or the rollover services the adviser can provide.
“Don't sell your services,” Ms. Wagner warned. “If someone wants to talk with you [about rollovers], do it one-on-one, not at the work site and not with other participants present.”
Plan advisers also need to make it clear to employers in writing that, when the adviser is providing rollover services, he or she is doing so without any plan-related authority. This makes non-fiduciary rollover services separate from fiduciary plan work. Employers must remain objective.
“Even if the plan sponsor is your best friend, do not let him encourage workers to roll over with you,” Ms. Wagner said.
Finally, when a participant comes in for rollover services, the adviser must have the worker sign a document stating that the employee understands that these aren't fiduciary services, that the worker is free to go elsewhere for rollovers and that the adviser is getting variable compensation.
If the plan sponsor does not sign off on the adviser's ability to provide rollover services without plan-related authority, the adviser must not accept any rollover business. The same goes in the event a worker doesn't sign off on the acknowledgement form.
Ensuring that workers and employers understand the adviser's different roles will become even more important once the Labor Department rolls out its rejiggered fiduciary regulation this summer, Ms. Wagner said.
“This is an area that's evolving quickly,” she added. “You need to make it clear that there is a divide.”
