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How do I communicate with clients regarding a plan rollover?

When communicating with a client or prospect regarding a potential rollover, the information you provide may be merely educational, or it may be fiduciary advice, depending on whether you make a recommendation.  You can educate a client or prospect on the rules regarding IRA rollovers without becoming a fiduciary (for example, describing what the individual’s rollover options are), or market your services as an advisor without becoming a fiduciary (for example, explaining that you could help the individual decide what to do if he or she wished to engage your services),  However, if you make a recommendation about whether he or she should (or should not) roll over retirement plan assets from a retirement plan to an IRA, you are no longer merely educating or marketing, you have crossed over to become a fiduciary advisor.

If you do intend to give fiduciary advice, you have to address two issues.  First, you have to determine whether it is prudent and in the client’s best interest to recommend rolling those retirement plan assets into an IRA, or to recommend leaving them in the 401(k) plan.  In evaluating this recommendation, you have to consider all relevant factors. 

Therefore, there is a duty to gather, if possible, certain key information about the retirement plan, including available investments, investment and administrative fees and expenses, whether investment advice is available, what the plan distribution options are, etc.  It is also necessary to understand the client’s goals and objectives.  Once that information has been gathered, you must compare those benefits and services with the benefits and services available in your IRA offering to develop a recommendation.    These comparisons and your recommendation should be clearly described to the client so that the client can make an informed decision.

Second, you have to determine whether the rollover advice results in a prohibited transaction, and if so, comply with the terms of an applicable exemption, such as the Best Interest Contract Exemption, or PTE 84-24.   

Download the Types of Communications Than Are Not Investment Advice >