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Dalbar to DOL: A Rollover Decision Is Not an Investment Decision

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Dalbar has told the Employee Benefits Security Administration that EBSA has based proposed sales standards for 401(k) plan rollovers on a faulty premise: that rollover decisions are investment decisions.

“Rollover decisions are primarily driven by spending choices, personal obligations, estate considerations and longevity risk,” Dalbar says, in an outline of Dalbar executives’ views that was sent to EBSA. ”Only after the rollover decision is made can attention be turned to the investment decisions.”

(Related: DOL Fiduciary Rule Hearings to Be Held on Quick Timeline With Limited Testimony)

Because the factors that shape rollover decisions vary so much from person to person, it’s “critical to give great weight to the importance placed by the investor on the various factors that determine the rollover recommendation,” Dalbar says.

Another big difference, Dalbar says, involves reversibility: Consumers can usually fix bad investment decisions by changing their investments, but, once they’ve rolled assets out of an employer’s retirement plan, there’s usually no way to roll assets back in.

Applying ordinary investment recommendation rules to investment recommendations made inside 401(k) plans, and other retirement plans governed by the Employee Retirement Income Security Act of 1974 (ERISA), may make sense, Dalbar says.

“Rollover regulations, however, exist only within ERISA and it is not feasible to simply build on existing investment recommendation regulations, since they don’t exist for rollovers,” Dalbar says.

Impartial Conduct Standards Proposal Background

EBSA is an arm of the U.S. Department of Labor.

Dalbar is a Marlborough, Massachusetts-based firm that evaluates, compares and ranks financial services companies.

EBSA officials have tried to replace an earlier, broad DOL fiduciary rule regulation — which died in court, after the Trump administration refused to defend it — with a narrower, simpler regulation.

The new, proposed regulation applies only to transactions involving participants in 401(k) plans, and other plans subject to the Employee Retirement Income Security Act of 1974, who are moving assets from an ERISA plan into something else, such as an individual retirement account, or into an annuity held either inside or outside of an IRA.

More on this topic

EBSA is planning to hold a hearing on the proposal Sept. 3. It has said that the only people who will be able to appear at the hearing will be those who have already submitted written comments, or requests to appear at a hearing.

Louis Harvey, the president of Dalbar, has submitted a written comment letter on the proposed Impartial Conducts Standards regulation.

Harvey and Cory Clark, Dalbar’s chief marketing officer, have both asked for a chance to speak at the Impartial Conduct Standards proposal hearing.

Harvey included the discussion of how Dalbar believes rollover decisions are different from investment decisions in an outline accompanying the request for permission for Harvey and Clark to appear at the hearing.


EBSA says its proposal would simply expand use of requirements that already affect investment advisors who are registered with the U.S. Securities and Exchange Commission.

It says applying the rules to rollovers should cost just $1.7 million per year extra.

Harvey scoffs in his comment letter about the idea that complying with the proposed Impartial Conduct Standards would cost the financial services industry just $1.7 million per year.

“This sum is grossly understated and should not be relied on,” Harvey writes.

— Read Pacific Life to DOL: Are You the Rollover Police?on ThinkAdvisor.

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