401(k) to IRA Rollovers and Fiduciary Standards


The Institute for the Fiduciary Standard announced a list of twelve Best Practices for financial advisors last fall.  They define A Professional Code of Conduct that Resource Advisory Services subscribed to follow.  For this article, we present our thoughts on the first of these items, by using rollovers from 401(k)s to IRAs for an example.  Consider these Best Practices whenever you deal with a financial advisor for any purpose, including us.

  1. Affirm the fiduciary standard under the Advisers Act of 1940, common law and, if applicable, ERISA and DOL’s Conflict of Interest Rule, govern all professional advisory client relationships at all times. Fiduciary status, as required in law, applies at all times, in all client engagements and this affirmation is stated in writing.

So, what does this mean when someone is helping you move your investments from an employer’s 401(k) to an IRA at another financial institution?

Under the Advisers Act of 1940, a firm such as Resource Advisory Services is required to be a Registered Investment Advisor (RIA), because we are in the business of giving advice on investment securities. RIAs have a fiduciary duty to their clients, which means they have a fundamental obligation to always act in their clients’ best interests.

ERISA stands for Employee Retirement Income Security Act of 1974.  It protects the retirement assets of Americans, with rules requiring all employer sponsored retirement plans to ensure fiduciaries do not misuse employees’ assets.  When your investments are in a 401(k), they are protected by these fiduciary requirements.

“Common Law” defines the responsibilities of a fiduciary. Many court cases, all the way back to old English law, make it clear that a fiduciary can be held directly liable for failure to put the clients’ best interest ahead of all others, including their own personal interests.  If you are harmed because a fiduciary to your 401(k) does something in their interest instead of your best interest, you deserve to recover your loss from the fiduciary.

IRAs are currently different.  You can move money from your 401(k) to an IRA where the person, firm or website giving you advice is not required to be a fiduciary.  Instead they can be considered representatives of the firm selling you the securities in the IRA.  Since they are not required to be a fiduciary, they don’t have to act in your best interest.  Their real responsibility is to the employer who pays them.

When you move your money from a 401(k) to an IRA, always make sure all advice is from a true fiduciary.  Ask the question and expect clear proof.  Some firms waffle on this issue.  They will say they are a fiduciary when they recommend moving money to an IRA.  They may even charge fees for this advice.  Then they contend they are no longer fiduciaries when they are selling investments for the IRA and being paid by their employer.  It’s confusing when they take off the fiduciary hat and put on the salesman hat.  This is why the Fiduciary Best Practices include emphasis on acting as a fiduciary – “in the best interests of all clients at all times.”  At Resource Advisory Services, we know we are fiduciaries to all our clients, all the time – not just the retirement accounts we manage.

The DOL Fiduciary Rule is intended to extend fiduciary protections to IRAs, for the same safety as 401(k)s. It seemed ready for implementation in April 2017, after many years of negotiation, development, review and court testing.  Our Department of Labor is now attempting to delay the implementation “for further review,” which may mean finding a way to end the rule.  When I raised this issue with our elected official, the response included:

However, even though DOL claims they are providing more transparency and accountability on fees tied to retirement accounts, the final rule goes too far and will make it difficult, if not impossible, for low- and middle-income Tennesseans to access the qualified retirement education and advice they need.” 

With 32 years working as a fiduciary, I am totally satisfied that there are and will be plenty of quality advice resources available for all Tennesseans under the Fiduciary Rule.  Delaying it harms the “low- and middle- income citizens” more than anyone.  Whatever happens on this delay, rest assured you and people you know can find fiduciary standards at Resource Advisory Services and other firms.  If you want your government to help the general public, click here to send your message to your elected officials.

Read the Forbes article The Ironic Conflict Of Interest Of The Fiduciary Financial Advisor for more insight into why Resource Advisory Services promotes the idea that all financial advisors and Financial Planners should be fiduciaries.

Contact J. David Lewis with DLewis@ResourceAdv.com. He has been associated with financial services since childhood and is a passionate advocate for fiduciary, fee-only financial planning.  He founded Resource Advisory Services in 1985.  National Association of Personal Financial Advisors (NAPFA) was formed only a few years before. Lewis became a NAPFA-Registered Financial Advisor in 1986.  From 2013 to 2016, he served a three-year term on its National Board of Directors. 

Recommended Posts