Beware When Your Financial Adviser Suggests Rolling Over Retirement Savings

Transferring a 401(k), IRA, or comparable retirement account might result in concealed charges, fiscal sanctions, reduction in investment choices, and diminished safeguards.

If you consult ten financial advisors about how and where to invest your tax-advantaged retirement funds, you might receive ten distinct recommendations. With numerous choices available, determining which option is the best can be quite challenging.

The difficulty increases when you're retired or close to retiring. You might have built up a substantial savings, and financial advisors could suggest transferring that amount into another kind of account.

However, rollovers have their pitfalls. This move is significant because it ranks as one of the largest and most impactful financial choices you might encounter.

The Financial Industry Regulatory Authority, known as Finra, is ramping up its oversight of financial advisors' advice regarding account roll-overs, particularly when these suggestions target retirees and senior citizens. Seniors who opt for such transitions with their retirement funds could inadvertently end up in a less favorable position compared to keeping their money where it was originally placed.

Here's the revised version: The positive development: Broker-dealers and registered representatives are now required to adhere to Regulation Best Interest (Reg BI) whenever they suggest plan rollovers to clients. This mandates that their advice must align with a duty of care, ensuring they prioritize the client’s interests above all else.

Even with this rule in place and Finra’s supervision, potential dangers still persist. It’s possible that by consenting to transfer assets (such as those from a 401(k), IRA, or comparable plan) into another account, you could incur undisclosed charges, face tax fines, lose access to certain investments, and forfeit various safeguards.

"Investors should assess the complete expenses associated with a potential rollover prior to proceeding," stated Craig Ferrantino, a financial advisor based in Melville, N.Y.

Read: 'I genuinely don't require the funds.' At 72 years old, I'm about to face Required Minimum Distributions (RMDs), yet I neither need nor desire the additional income due to the associated tax implications. What should I consider doing?

Follow your money

Enumerate all associated fees and expenses, then contrast them with those of your present plan. Ensure that the suggested transfer won’t incur any taxes or penalties.

The advisor's suggestions ought to encompass written material presented in straightforward language along with accessible charts and tables. This will enable you to contrast the attributes, advantages, expenses, and fiscal implications of different account types and transfer options. Consider obtaining a physical copy of this plan and consulting with trusted professionals such as your accountant and lawyer for further advice.

Think about how the advisor receives payment. Often, they charge a fee based on the assets under management, usually around 1%.

Read: Fourteen financial experts share the top monetary worry their clients are dealing with currently.

If you feel compelled to move all your assets (such as your retirement savings) to their company, determine the overall costs involved. In addition to their fees, inquire about the expense ratio for the recommended investment products (this includes charges like fund management, advertising, administrative tasks, etc.).

Certain advisors have preferences when it comes to specific product types or custodial services, so ensure you comprehend the reasoning behind their advice regarding your IRA rollover. These professionals might direct their clients' retirement savings towards particular financial institutions and receive incentives based on the amount of business they generate with those firms.

Question everything

Inquire about the advantages and disadvantages of various rollover options prior to making your choice. Also, ask about their motivations.

"You should inquire, 'Are there any sales bonuses you receive for suggesting this?' and 'Is there any conflict of interest in your recommendation of this product?'" Ferrantino stated.

Fred Reish, an attorney and Faegre Drinker partner based in Los Angeles, recommends that individuals planning for retirement should inquire with their financial advisor about these points prior to approving a rollover transaction: 1. What are the fees associated with my current plan versus what I would be charged under the new arrangement? 2. Does moving my funds into this new account provide better investment options than those available now? 3. How might taxes impact me differently depending upon how and when I execute this transfer? 4. Are there penalties or restrictions involved with withdrawing from or transferring out of my present investments? He encourages clients to seek clarification on such matters so they can make well-informed decisions regarding their savings transition.

• Will you keep an eye on the new investments following the initial suggestion?
• What are your charges, and do you receive any payment or perks from anyone besides me?
• What investment approach do you believe would be best for achieving my objectives? Could you explain your reasoning behind this suggestion?

If the advisor fails to provide clear and understandable responses to these queries, it serves as a warning sign," Reish stated. For instance, plan fiduciaries must continuously assess the plan’s investment choices; therefore, the response to the initial query ought to be a simple "affirmative.

He points out that when you compare the overall expense of the suggested rollover with your present plan, you should consider even marginally higher percentage fees as important.

If the overall expense of the proposal, including the advisor's fee, significantly exceeds what you currently pay, ensure that extra benefits are provided to warrant this increase," he advised. "Keep in mind that even a seemingly minor percentage like 0.5% or 1% could accumulate into substantial sums over extended periods.

More: “I'm practically terrified to check my account balance:” With $300K in a 2025 target-date fund, is there hope for recovery?

Also read: Is the risk of tariffs justified when considering our retirement—and broader—economic security?

Share this post