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Retirement Planning > Retirement Investing

How to Boost IRA Rollovers as DOL Fiduciary Rule Looms and Competition Grows

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Matt Sommer, director of defined contribution and Wealth Advisor Services at Janus Capital, says advisors should be preparing now for adoption of the Department of Labor’s fiduciary rule, currently under review at the Office of Management and Budget.

The rule, which requires that advisors and brokers put their client’s economic interests before their own when it comes to retirement advice, could take effect as early as April, according to industry observers who spoke with ThinkAdvisor recently. “Advisors should prepare for this new rule becoming reality,” says Sommer, who visited ThinkAdvisor’s New York office.

The rule essentially redefines fiduciary under the Employee Retirement Income Security Act (ERISA) and would prohibit advisors from engaging in transactions that involve conflicts of interest for their client unless both the advisor and client agreed to an exemption, signing a best interest contract exemption (BICE).

Although details of the final version are not yet known, Sommer said advisors need to think about its impact on clients’ retirement accounts, specifically whether clients should leave their 401(k) funds with a former employer or roll them over into an IRA. Many big 401(k) plans now offer current and former employees investment advice, and their fees can be roughly 70% lower than fees on a full-service IRA account, says Sommer.

Given that differential, Sommers says it’s important for advisors to “come to the table with more than just money management and asset allocation models” when talking with clients. They should have the ability to advise on other financial matters such as “cash flow planning, Social Security, naming IRA beneficiaries, wealth transfer.” Advisors already taking such a “holistic approach” are the ones “best prepared” for the new rule, says Sommer.

“Forward-thinking advisors have realized that good investment management and asset allocation have basically become commoditized and [tell themselves ] ‘I need to offer more if I’m going to differentiate myself,’ “ says Sommer.

Advisors who don’t take that approach and whose clients already receive investment advice from their 401(k) plan are at a disadvantage. Those clients “have no reason to move the money into an IRA,” says Sommer.

Janus, which had $191 billion in assets under management as of the end of 2015, has no position on the DOL proposal, says Sommer, because it doesn’t provide investment advice to individuals. It has, however, prepared a workbook to help advisors prepare for the new rule and adjust to growing competition from robo-advisors and from large 401(k) plans providing investment advice to current and former employees, says Sommer.

The workbook, called “Capturing the Million Dollar Rollover,” offers a series of exercises for advisors to perform. The first part is designed to help advisors develop a unique value proposition for servicing rollover retirement accounts. It asks advisors what services they provide for rollover clients and how those services differ from other options available to clients.

The next part focuses on preparing for the questions that clients will likely ask, such as why they would need an IRA rollover when they can keep their money in their current 401(k) plan and what the fees are for each option.

The third section provides several theoretical case studies involving clients of various ages with different amounts of assets – retirement and other assets – facing different financial issues. Advisors are then asked to provide their analysis of these scenarios and suggest solutions.

The workbook is “designed to help advisors think about these changes, think about their service model, how they explain their services to clients,” says Sommer.

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