Regulating Financial Advice: The Conflicted Role of Record Keepers in Pension Rollovers

Abstract

Rollovers from 401(k) plans to IRAs have resulted in IRAs having more assets than 401(k) plans. Roughly 40% of assets rolled over to IRAs are managed by the 401(k) plan record keeper. Record keepers know when employees have changed jobs, often contacting them to urge them to roll over to an IRA managed by the record keeper. Because they know the fees their clients are paying in 401(k) plans, they know when advising a rollover will likely result in clients paying higher fees. While much of the literature relating to the DOL fiduciary rule is on how to meet the rule, greater attention should be paid to the steps advisers and financial services firms will take to avoid it. The author shows that it is easy for record keepers to reword their communications to avoid their being considered as advice while still effectively influencing the decisions of the recipients of the communications.