FINRA warns about 401(k) Rollovers – Let’s talk again about conflicts of interest!


FINRA, the Financial Industry Regulatory Authority, is the securities industry’s self-reglatory organization.  They do the various test, deal with broker and advisor registration and monitoring, etc.

And FINRA has recently started cracking down on advisors and brokers who are giving questionable advice to investors about how to deal with their 401(k)s and rollovers.  In particular, a “regulatory notice” was issued recently specifically to remind firms of their responsibilities concerning IRA rollovers.  <;.  Of special note in that regulatory notice was the following:  The marketing of the IRA rollover services offered by the broker-dealer must be balanced by a discussion of other available options and how they compare to the IRA offered, particularly with regardto fees.

The notice is intended for the broker-deal and investment advisor community.  FINRA, however, also does some excellent materials intended for the general public, the clients.

A few weeks ago, they published the following:  <>

It’s a great piece which starts like this:

The IRA Rollover: 10 Tips to Making a Sound DecisionThe largest source of IRA contributions comes from individuals who move their money from their employer-sponsored retirement plans such as 401(k) and 403(b) plans when they leave a job, according to the Employee Benefit Research Institute.

If you are considering rolling over money from an employer plan into an IRA—or if you have been in contact with a financial professional to do so—follow these tips to decide whether an IRA rollover is right for you.

The tips which follow are so good that at least one popular investing site put them up (in a rather annoying “ten things” format where each tip was on its own page and you had to click through 10 times to see it all).

With respect to questionable behavior on the part of advisors, the issue is that not all former-employer 401(k) accounts should be rolled over either into IRAs or into qualified annuities — both of which can be very profitable products, especially for the non-fiduciary broker-dealers and insurance agents.

Even for the fiduciary financial advisors, many of whom are “fee only” but, in fact, paid a fee which is a percentage of assets under management, the same conflict of interest may be there – the advisor may not get the advisory fee (or not the same advisory fee) for assets which remain with your former (or current) employer.  So, again, there may be a conflict of interest.

That said, in many cases, the best course of action is to roll the former employer’s 401(k) plan balance into an IRA, so if your advisor recommends this, don’t assume the worst.  But make sure that the advisor has considered — and explained to you — the various alternatives and both the advantages and disadvantages of each.



FINRA is a registered trademark of the Financial Industry Regulatory Authority

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