New Restrictions Loom for IRA Rollovers

Updates to the Department of Labor’s (DOL) fiduciary definition could hinder financial advisers’ efforts to target retirement plan clients for individual retirement account (IRA) rollovers.

Such efforts already bring an important service to clients and represent a significant revenue stream for advisory businesses, according to a white paper published by Pershing LLC, a BNY Mellon company. But regulatory changes could add certain IRA rollovers to the DOL’s list of transactions prohibited under the Employee Retirement Income Security Act (ERISA).

Authors of the white paper, called “Pursuing Rollovers in an Evolving Regulatory Landscape,” said it is impossible to predict what the new definition will entail before it is actually issued. Still, advisers can be proactive by understanding current fiduciary limits on rollover services and the types of conflicts of interest they are meant to prevent.

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According to the paper, advisers who are not fiduciaries can help participants freely with distributions and rollovers. For those who are fiduciaries, or those who become fiduciaries under the expanded definition, the DOL’s new interpretation will force advisers to consider a more prudent approach for assisting clients with rollovers.

Specific pieces of advice for fiduciary advisers include the following:

–  Clearly define the fiduciary services provided to a plan so as not to include rollovers.

–  Ensure the decision to take a distribution and to rollover an IRA is the participant’s decision.

– Offer clients unbiased education materials regarding distribution alternatives and rollover services.

–  Provide written fees and expense disclosures for the IRA and its investments, as well as the adviser’s compensation levels.

Other experts have weighed in on the subject recently, sharing Pershing’s outlook.

Dan Notto, senior retirement plan counsel at AllianceBernstein, recently told PLANADVISER it’s likely the DOL will put out the new fiduciary definition in the next few months.

“From what I have seen the head of EBSA, Phyllis Borzi, is very intent on getting it out. I think she will follow through on that soon,” Notto said. “There appears to be a belief among observers that the new rule will cover IRAs and IRA rollovers, so that the advice to the participant in a qualified plan to take the money out of the plan and roll it into an IRA, that would be considered a fiduciary act.”

Notto agreed it is difficult to predict what the bottom-line impact of the new definition might be before the actual ruling comes out, as plan fiduciaries already carry considerable responsibility for preventing conflicts of interest.

“If you are in a position where you are giving advice on rollovers then you are already subject to ERISA’s conflict of interest rules,” Notto said. “If, as a result of your advice on a rollover, you receive more in fees than you otherwise would have received, that’s a potential conflict of interest. What the DOL officials continuously stress is that they want to try and identify new situations where there might be conflicts of interest that have been overlooked.”

Pershing partnered with Fred Reish, an ERISA attorney and retirement plan expert, to develop the white paper. A full copy of the paper is available at www.pershing.com.

John Hancock Names New Managing Directors

John Hancock Investments has hired three new managing directors for its Institutional team.

Geoffrey Johnson has been named managing director, defined contribution investment only (DCIO), for the Northwestern United States. John Lacey has been named as managing director, DCIO, for the Southwest. Michael Reynolds has been named managing director covering registered investment advisers in the Southeast.

Johnson and Lacey will be reporting to Gene Huxhold, senior managing director, DCIO, while Reynolds will report to Todd J. Cassler, president of institutional distribution.

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“Over their careers Geoff, John and Mike have shown they are smart, technical and driven. These attributes, paired with our manager of manager investment model, create a very powerful combination as we build on our significant growth in the institutional channel,” said Cassler.

Johnson was most recently with Merrill Lynch’s Institutional Consulting Group as first vice president of investments – wealth management adviser. Prior to that, he held several roles with Russell Institutional Services including regional director of the institutional referral program. Johnson served in the United States Marine Corp from 1994 to 2002. He holds a Bachelor of Arts in business administration from Pacific Lutheran University.

Lacey was formerly director of investment specialist group DCI, with MFS Investment Management, working directly with platform wholesalers in the western United States. Previously, he was a vice president and regional pension consultant with Nationwide Financial, and a vice president and regional retirement coordinator, with Morgan Stanley. He earned a Bachelor’s in communications from California State University.

Reynolds was most recently regional vice president, central states region, for RidgeWorth Investments of Houston, managing relationships with RIA, Wirehouse and independent firms. Prior to that, he worked for Pioneer Investments, Legg Mason (formerly Citigroup Asset Management) and American Express Financial Advisors. He attended the College for Financial Planning, and holds a Bachelor’s in business administration from Villanova University.

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