Apples and Oranges: Rollovers, Qualified Plans, and The Best Interest Exemption

One of the wrinkles of the new fiduciary rule is the requirement of a financial advisor who wants to solicit former plan participants for a rollover to review the costs involved with the plan to determine whether moving the money to a rollover IRA is in the potential client’s best interest.

While I’m a fan of fee transparency and this is going to be a plus for consumers, I think there is one big problem with this rollover wrinkle.

Mots money these days in qualified plans is in participant directed 401(k) plans. Despite what the media thinks, the fees aren’t as bad as they were 10 years ago. They are low when compared to the asset-based fee that advisors have for IRA clients where they have discretionary control. They may charge 100 to 125 basis points for advice and that looks rather high than the 25-50 basis points that advisors collect on 401(k) plans. Of course, there is a difference when participants direct their own investment and bear the risk. The work by a financial advisor who makes the investment decisions in a fiduciary capacity deserves more than the 25-50 points they charge when they don’t have discretionary control and they select the investment lineup.

I think advisors should certainly charge more for the work they do especially when they’re the ones in control of making the decisions. The problem is whether the Department of Labor and litigators understand the notion that people who do more, should get paid more

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