Thinking about doing a 401(k) rollover? It may now be harder to determine who is a true, full-time fiduciary — and thus giving you unbiased advice — when you’re rolling over your retirement funds, pros say.
That’s because last week, the U.S. Department of Labor’s 2024 Retirement Security Rule— which required financial advisers to operate under a fiduciary standard when making one-time recommendations like 401(k) rollovers or annuity purchases — was struck down by a Texas court. (This isn’t the first time there’s been a battle over a fiduciary rule — and you can read a full-account of this back-and-forth here as well as the new rule for advisers on 401(k) rollovers.)
This means that “many financial professionals, particularly those offering one-time recommendations such as 401(k) rollovers, may not be required to act as fiduciaries. As a result, Americans with retirement accounts should not assume all advice is subject to a consistent fiduciary standard,” says Andrew Dorado, senior counsel at Liebert Cassidy Whitmore. (Looking for a fiduciary? You can use this free tool to get matched with fiduciary advisers from our ad partner SmartAsset, as well as sites like CFP Board and NAPFA.)
What this means for you
This could mean you should do more diligence on the recommendations you are getting. “The practical takeaway for Americans with retirement accounts is clear: do not rely on labels [titles like financial adviser and fiduciary can be misleading], instead rely on written questions and documentation,” says certified elder law attorney Evan H. Farr at Farr Law Firm. “Write down and ask if the professional is acting as a fiduciary for this recommendation, how they are paid, if they receive commissions or third-party payments, if they will continue to monitor the account post-recommendation and why this recommendation is better than leaving the money as is.”
For his part, Cesar Vazquez Jr., vice president and senior retirement plan consultant at Tompkins Financial Advisors, says while it will be easier for American savers to access professional advice without the stringent, restrictive documentation [conflict of interest disclosures and legal liability paperwork] previously required, there are new hurdles they’ll need to address since advisers will no longer need to formally justify recommendations.
“Financial professionals, like brokers and insurance agents, will not be required to act as fiduciaries on all retirement advice, which would lead to higher commission and conflict of interest sales that were to be banned. Without the best interest mandate, the risk of receiving advice motivated by adviser commission instead of your portfolio’s best interest increases,” says Vazquez. You can use this free tool to get matched with fiduciary advisers from our ad partner SmartAsset, as well as sites like CFP Board and NAPFA.
When dealing with 401(k)s or any retirement plan that contains stocks, ETFs, mutual funds or other equities, certified financial planner Nancy Hite of The Strategic Wealth Advisor says consumers should avoid working with people who only have an insurance license. “Stocks, ETFs and mutual funds are securities, and insurance agents are not trained to evaluate or make investment decisions on securities. Many life insurance agents do not know any more about securities than a member of the public might know and therefore it can be dangerous to rely on them for advice on securities,” says Hite.
David Lau, CEO of DPL Financial Partners, says navigating retirement and creating a sustainable income plan is very challenging, even for professional advisers. “Getting sound, fiduciary advice from a well-trained professional as you approach or begin retirement can be the difference between enjoying the retirement you’ve envisioned and enduring ongoing financial stress during your golden years,” says Lau.
Never assume the adviser is a fiduciary — always ask
“Consumers should never assume an adviser is a fiduciary. Instead, you can ask, in writing, whether an adviser is acting as a fiduciary for all of your accounts, 100% of the time. Additionally, I suggest asking for a clear breakdown of exactly how the adviser is compensated to identify any hidden fees,” says Yehuda Tropper at Beca Life Settlements.
When inquiring about your adviser’s fiduciary duty, it’s also important to find out how they’re paid. “Are they paid a salary or do they earn a commission on products? You should also ask what are alternative options for low-cost, advice-free investing,” says Vazquez.
Farr says the safest consumer behavior requires specifics. “Ask why they recommend a specific account type. Why did you recommend this product? What is my all-in annual cost? Were there any lower cost alternatives you evaluated? What happens if I do nothing? The last question is critical because a significant number of bad retirement recommendations are not outright scams, they are costly exchanges being presented as upgrades,” says Farr.
The most straightforward path, according to Lau, is to seek out a CFP professional or other fiduciary. “Because CFP certification requires a fiduciary standard of care at all times, these advisers are ethically bound to act in your best interests. There are more than 100,000 CFP professionals, so there are numerous options to find an adviser who meets your needs,” says Lau. You can use this free tool to get matched with fiduciary advisers from our ad partner SmartAsset, as well as sites like CFP Board and NAPFA.