Unsolicited and Implied Rollovers Under the New Fiduciary Rule

The retirement security rule, finalized last week by the Department of Labor, makes one-time recommendations subject to fiduciary requirements of prudence and loyalty under the Employee Retirement Income Security Act. This includes a recommendation to rollover from a plan to an individual retirement account—but what about instances in which a client approaches an adviser for a rollover without a recommendation?

Experts say that saver-initiated rollovers, according to the final rule as provided by the DOL last week, will not necessarily trigger the fiduciary standard, but there is nuance worth considering.

Unsolicited Rollovers

Bonnie Treichel, founder of Endeavor Law, says that the recommendation to make a rollover is covered advice, even if the adviser does not recommend what to invest in once the money is rolled over. A recommendation to rollover is at a minimum a recommendation to divest from assets and partially or fully leave a plan, and is therefore covered under the final rule.

However, cases in which a retirement investor reaches out proactively to an adviser are known as “unsolicited rollovers,” and “a lot of rollovers are client-initiated,” says Treichel.

If a client “just picked up the phone,” and “it’s entirely the client’s idea to take the rollover, and you are not at all making the recommendation to take the rollover, then that would not constitute advice,” she says.

Treichel cautions, though, that many advisers avoid rollovers of this kind since it can be hard to document that level of client independence.

The best practice here, Treichel says, is to go through the rollover analysis and decide whether the rollover advances the client’s best interest. Doing so could require an adviser to recommend against a rollover if the plan has lower fees or superior services to the IRA provider.

William Nelson, an associate general counsel at the Investment Adviser Association, agrees that unsolicited rollovers are somewhat common and that a rollover that the adviser did not recommend is not covered by the rule, as “you have to have that actual recommendation.” Nelson says that documenting an unsolicited rollover is advisable, but the DOL does not consider this “determinative,” though “it can be used as evidence” that there was no recommendation.

Jason Roberts, founder and CEO of the Pension Resource Institute is less certain that unsolicited rollovers won’t be challenged under the new rule, noting that “specific facts and circumstances are critical” when determining if a rollover recommendation is covered.

If a client simply asks “what paperwork do I need to fill out?” then an adviser is still recommending the destination of the rollover by providing the paperwork and telling them where to sign. Recommendations concerning rollover destinations are covered by the final rule, Roberts says, because “I chose to tell you to send it to ABC custodian.”

“There are circumstances one can envision where no recommendation is made,” regarding a rollover, he notes. But “the opening and fact patterns have to be very carefully constructed.” Since recommending a destination, even implicitly, can make the rollover fiduciary advice, then the number of unsolicited rollovers not covered by the final rule may be very limited in practice, he believes.

Implicit Rollover Recommendations

Nelson adds that the DOL is “worried about implicit rollover recommendations,” also. An implicit recommendation to rollover could include suggesting that a rollover is a good idea, generally speaking, and therefore veering into advice.

An implicit recommendation can also include offering advice on how to invest funds from a rollover before a rollover has actually taken place, Roberts says, because the re-investment advice presupposes a rollover.

 A recommendation is understood as a “call to action” under the rule.

Treichel says that when it comes to implicit recommendations, “don’t create things that are a call to action” and “implicit calls to action count.” She adds that disclaimers that say you are not recommending a rollover may not get an adviser very far “if your actions don’t match your words.”