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September 12, 2016 at 10:05 AM
Hundreds of billions of dollars of 401(k) assets that would otherwise have been rolled over to IRAs will stay in plan upon implementation of the Department of Labor’s fiduciary rule, according to a projection from Cerulli Associates.
The rule, which service providers and advisors will have to be fully compliant with come January 1, 2018, makes any advice to roll assets over to an IRA a fiduciary recommendation subject to the Best Interest Contract Exemption.
Advisors will be expected to document why the recommendation to roll assets out of an employer-sponsored plan, where investors may benefit from cheaper institutional shares of investments, to an IRA with more expensive retail shares of investments, is in an investor’s best interest.
While industry consensus has been that the $7.3 billion IRA market will absorb much of the rule’s impact on industry, other factors, like the inability of many 401(k) plans to provide drawdown strategies to supply retirement income, will assure a continued migration of some retirement savings to IRAs.
The question of how much will migrate will largely depend on advisors’ ability and willingness to recommend a rollover.
According to Cerulli, the decision to roll over assets is most impacted by the advice investors receive from financial professionals. Nearly 30 percent of respondents surveyed by the firm said that advice was the primary determinant to move assets out of plan—more than any other influence.
(Related: Milevsky on DOL Fiduciary Rule: Big Flaws; Annuities Will Suffer)
But respondents also cited other reasons that advisors may use to rationalize a rollover recommendation.
Almost 29 percent of respondents said they rolled over assets because they had an existing IRA, suggesting a preference to have their savings consolidated.
And another 27 percent said they did so because their 401(k) plan had limited investment options.
