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IRA Rollovers: “In-the-Know” Regulatory Insights from Preston Rutledge

Regulatory Insights from Preston Rutledge

In this blog post, we’re featuring an interview with Preston Rutledge, Founder and Principal, Rutledge Policy Group.

After a distinguished career in public service — most recently as the Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA) — Preston established his government affairs consultancy to help businesses stay ahead of an ever-changing legal and regulatory landscape. That’s why we wanted to check in with him to get the latest news on the Department of Labor (DOL) fiduciary rule and how it relates to IRA Rollover business.

Ed: The DOL recently announced that it is re-writing the fiduciary rule. Focusing on IRA Rollover recommendations, what is the DOL most concerned about?

Preston: For some time, the DOL’s paramount concern is that participants may be encouraged by financial advisors to roll their retirement assets out of 401(k) accounts that are serving them well and into IRAs that will generate higher fees for the advisor but may not be a better deal for the participant/client. As a result, a Rollover recommendation is likely considered to be a fiduciary action with all the responsibilities that presents.

Ed: What are the DOL and other regulators, like the SEC, looking for from financial advisors when they make Rollover recommendations?

Preston: Basically, regulators are looking for evidence that the advisor conducted an analysis for and with the client of the pros and cons of leaving the assets in the 401(k) versus moving the assets to an IRA. This includes evidence that the client made an informed decision.

It’s crucial that advisors document the decision-making process. Contemporaneous documentation of a prudent process is the way a financial advisor generates evidence that they have acted in the best interest of the client.

Ed: What is the outlook for financial advisor fiduciary duties, especially as they relate to IRA Rollovers?

Preston: The DOL believes the 1975 rule needs some updating given the changes in the financial advisory landscape. Indeed, IRA Rollovers essentially did not exist 45 years ago and today hundreds of billions of retirement plan assets are rolling into IRAs every year.

I think that the DOL will continue its strong focus on IRA Rollovers and on the IRA accounts that receive these Rollovers. I think it’s safe to assume the new Administration will raise the bar when they rewrite the rules later this year.

Ed: What’s the best thing financial services firms can do today to prepare for what’s ahead?

Preston: Of course, firms have got to comply with the current regulations and their policies and procedures will have to keep pace with regulatory refinements as they are announced and implemented.

Looking beyond compliance, I think that firms would be well-served if they take this opportunity to look at their business models to make sure they are optimized for this regulatory environment. I know that Princeton Financial Consultants has been focusing on this — helping firms do the “right thing” for their Rollover prospects while also benefiting their business over the long term.

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