Insights from the experts in investment fiduciary responsibility.

Answering Your Questions on Fees, Services, and a Prudent Process for IRA Rollovers

Posted by Fi360 Team on September 20, 2017

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On Tuesday of this week, we conducted our quarterly Coaching Call for Designees on the topic of Fees, Services, and a Prudent Process for IRA Rollovers. 

During the presentation, Robin Green, Chuck Hammond, and Duane Thompson looked at the changing environment for the IRA rollover market and what it means for advisors who are offering those services. For active AIF®, AIFA, and PPC designees who were not able to attend, a replay is available in the Designee Portal. 

There were a number of questions that our panelists were not able to get to before the conclusion of the webinar, which are are happy to address in the following Q&A. Please also note that the data and worksheets referenced during the webinar and in the Q&A below come from the IRA Rollover Fee & Service Evaluator, available in our book store

Stay tuned for an announcement of our next Coaching Call, which is an exclusive benefit for active Fi360 designees, tentatively slated to take place in December. 

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Q: Are the fees shown in your data for the rollover itself, or annual management of the account after the rollover? 
A: We asked advisors to provide their advisory fees as both the “up front” fee and their trail revenue.  Both statistics are presented in the IRA.

Q: Is the advisor or his RIA firm the Portfolio Manager or do they hand off? 
A: This is specifically the revenue advisors receive for the rollover.  We did not ask about the process for moving the purchase from sales to ongoing maintenance.  We asked advisors to specifically disclose their compensation for rollover services – both “up front” fee and ongoing trail revenue that the advisor received for the transaction.

COMMENT: Fee analysis (costs) is absolutely essential and splitting compensation and costs does remain a consideration of considerable confusion. 
Response: We agree.  The time, expertise, risk and cost of conducting rollovers was not in scope of this study. 

Q: Do your totals include the broker dealer expenses and/or investment costs to the client? 
A: We asked advisors to exclude all other expenses and only tell us about their advisory fees for the rollover. 

Q: If you are the adviser on a 401k plan and a participant wants to roll over an IRA or old 401k into their current plan, what type of analysis is required?
A: The worksheet and best practice steps in the IRA Fee Reasonability Evaluator is applicable for money in motion recommendations.  If you make a recommendation of any type, you are a fiduciary.  This includes a recommendation to keep money where it is, move it to another qualified plan, roll it to an IRA or even cash it out. The IRA Fee Reasonability Evaluator has steps to help advisors consider elements of the current state to the proposed state.

Q: You mentioned advisors using flat fees, is that a one time fee for assisting with the rollover or is that an ongoing fee for investment management? Is that fee charged in addition to investment management once the rollover has taken place?  
A: Advisors presented their fees for the rollover as both an “up-front” fee and ongoing trail revenue.  In our data, we see only 22% of advisors collect a one-time, upfront fee.

Q: Are these advisors only getting paid if the rollover comes to them or regardless of where it goes?
A: We didn’t specifically ask this question to advisors.  However, we did learn that 22% of advisors only assess a one-time, up-front fee.  This arrangement could suggest they collect a fee regardless of where the money is placed.

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