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Fiduciary rule affects advice on rollovers

If you are considering rolling over your 401(k) plan into an individual retirement account, you are on uncertain ground due to the U.S. Department of Labor’s fiduciary rule. Essentially, the rule addresses who (and how someone) can advise you on the rollover.

The advice-giver needs to comply with the rule’s many twists and turns. Plus, some provisions of the rule itself are in flux. This is new, and it changes how a financial adviser will deal with you. And in some cases, if you are doing business with a financial institution that houses both your taxable accounts and your IRAs, the IRAs may be moved to a special call center that handles retirement accounts.

The rule was first proposed a few years ago (April 20, 2015), made effective in June 7, 2016, with a delayed applicability date until June 9, 2017, and certain provisions of related exemptions postponed until July 1, 2019. Also, the whole package is still under presidentially mandated review.

Since certain provisions related to the rule have been delayed and others adopted, there is uncertainty in the marketplace as to how financial institutions should communicate with someone seeking advice.

As a result, under the rules that are currently in force, if you go to a financial institution seeking advice on whether to do a rollover of your 401(k), you may not get the kind of help you are seeking, explained attorney Kristina M. Zanotti of the Washington, D.C., office of K&L Gates LLP.

Zanotti is co-author of “Past, Present and Future of the DOL Fiduciary Rule.” For lawyers, benefits experts and human resources professionals, this February 2018 report is a must read — it is a comprehensive review of the current state of the fiduciary rule. Zanotti explainedsome institutions have decided to avoid fiduciary status by limiting discussions to “education.”

Others will give covered investment advice, and by doing so fall under the definition of “fiduciary,” with all of the weight of that decision, including addressing prohibited transactions under ERISA (the federal law that governs 401(k)s) and complying with exemptions, such as the Best Interest Contract Exemption or the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs.

In a study commissioned by the Securities Industry and Financial Markets Association, Deloitte reported that “access to brokerage advice services has been eliminated or limited by many financial institutions as part of their approach for complying with the Rule, and that retirement assets have shifted to fee-based or advisory programs because of those limitations. Fee-based accounts typically offer a higher level of service than brokerage, and generally have higher fees to compensate for the additional services.”

Notably, 53 percent of these firms are limiting access to advised brokerage for retirement accounts, impacting 10.2 million accounts and $900 billion in assets under management.

Ninety-five percent of firms reduced access to products typically offered to retirement savers, including mutual funds, annuities, fixed income and private offerings, impacting 22.8 million accounts. Sixty-seven percent of firms have reduced the number of mutual funds offered to retirement investors.

“The DOL Fiduciary Rule has had significant impact across the retirement advice industry and was widely reported as an extremely disruptive regulation by study participants,” according to the report. SIFMA, a trade association representing the U.S. securities industry, engaged Deloitte to study 21 firms whose businesses include providing individual investors with financial advice.

To read the Deloitte report, go to To read the K&L report, go to


Columnist Julie Jason provided incorrect information in last week’s column on Page 8 of Live Well. The column implored readers to ensure the required minimum distribution had been taken from an IRA after the death of a loved one. If it was not taken, beneficiaries should file IRS Form 5329 to request a penalty be waived for failing to take the required distribution because the custodian has died.

In an explanation of the form, Jason mistakenly explained how to file line 54. The correct explaination follows:

Even though the form calls for subtracting line 53 from 52, that leads to the wrong result. That is, the instructions to the form clarify that more is involved and it’s all about the “shortfall.” Logic suggests that in example case the shortfall is $5,347.59 — but that logic is wrong, according to attorney Natalie Choate. The correct amount to enter on line 54 is “zero” ($0). Why? Because you are claiming you missed the required minimum distribution due to reasonable cause; therefore, there should be no penalty. Line 54 is the amount of the (actual) shortfall minus the amount for which you are requesting a penalty waiver — net, zero.

Julie Jason is a personal money manager at Jackson, Grant of Stamford, Conn., and an award-winning author. Contact her at

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