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Senator Tom Harkin of Iowa

A recent Government Accountability Office report maintains that 401(k) providers are offering misleading advice to plan participants regarding IRA rollover options. This development offers advisors an attractive opportunity to grow their business by helping employees who are leaving their employers better manage retirement assets.

The report maintains that the 401(k) industry commits considerable resources to marketing IRA rollovers that may not be best suited for certain investors. The GAO also says some plan service providers mislead investors by claiming that their IRA products have no fees.

In response to the report, Sen. Tom Harkin (D-Iowa), chairman of the Senate Health, Education, Labor and Pensions Committee, has opined that plan participants seeking rollover advice from their 401(k) plan providers shouldn’t be deluged with marketing materials that are intended to look like objective investor education.

With that in mind, advisors should be prepared to help clients and potential clients who are leaving their employers to evaluate options for managing 401(k) assets. Part of that process is basic financial planning, such as assessing investors’ risk tolerance and investment time horizons in order to determine appropriate asset allocations.

In addition, advisors should be prepared to illustrate how they can objectively assess the performance of mutual funds or other investment products that their clients can use when rolling assets into IRA accounts. The capabilities may include screening funds with services like Morningstar or using home-office due-diligence teams to find products with compelling track records, sensible investment processes and highly regarded portfolio management teams.

In the process, advisors should illustrate that they can screen and recommend funds from multiple providers rather than be limited to proprietary products that may not be well suited for clients.

Advisors should also be prepared to evaluate fees currently charged by 401(k) plans, fees that plan providers would charge for IRA products and fees for products not affiliated with the plan providers.

The Department of Labor rolled out new fee disclosure requirements for 401(k) providers last August, yet the complex nature of retirement plans can make understanding expenses confusing. With that in mind, advisors should be able to illustrate the impact of different fee levels on savings accumulations over the years.

In some cases, retirement plan sponsors qualify for institutional pricing of investment products, so the programs may have low fees. The low fees may mean that investors should keep their assets in their retirement plans assuming their employers allow them to do so. At the same time, advisors should emphasize the value that they can provide by offering customized investment recommendations and financial planning services.

Being prepared to help clients understand their investment options when leaving an employer, of course, is only part of the battle. Indeed, advisors need to ensure that their clients understand that their advisory services include helping investors manage retirement assets. Advisors should periodically remind clients that they are willing to help with managing their retirement plan assets. They should emphasize that much is at stake when considering rolling assets into an IRA and that such decisions should involve careful analysis of fees, retirement goals and other factors.

Advisors should also routinely ask their clients about their employment status. Such a discussion may be incorporated in periodic portfolio reviews or when advisors update their clients on their progress in reaching their savings goals. Asking clients if they are content in their jobs, of course, may help clients feel that their advisors are genuinely interested in their well being. Yet, it has the additional advantage of creating an opportunity for advisors to remind their clients that they can help with rollover decisions.

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Last modified on Sunday, 19 May 2013
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