Episode summary
A Step-By-Step Process To Handle Retirement Plan Rollover Conversations, With Leo Rydzewski
Financial Advisor Success (Kitces)
· · 28 min · Hosts: Michael Kitces · Guests: Leo Rydzewski
Summary
The episode explains how financial advisors should handle 401(k) rollover conversations under CFP Board fiduciary rules, with Leo Rydzewski emphasizing that a rollover is only one of several possible outcomes. He argues that advisors must not treat moving assets to an IRA as the default, because leaving assets in the employer plan, rolling to a new employer plan, or taking a distribution may also be appropriate depending on the client’s situation.
Rydzewski walks through CFP Board’s fiduciary framework and its new rollover guide, which applies the duties of loyalty, care, and following client instructions. He says rollover advice creates material conflicts of interest, including compensation incentives, account-type conflicts, and investment-selection conflicts, and those conflicts must be disclosed and managed rather than ignored. He strongly recommends written disclosure and notes that disclosure alone is not enough.
He then outlines a seven-step duty-of-care process for rollover recommendations: gather personal and financial information, define the advice required, analyze the current plan and alternatives, develop a recommendation, present it, implement it correctly, and monitor it over time. Cost matters, but he says it is not determinative, and advisors should compare plan features such as services, creditor protection, distribution rules, and investment menus.
Key takeaways
- Leo Rydzewski says rollover advice can create compensation, account-type, and investment-selection conflicts that must be disclosed and managed.
- The guide rejects treating an IRA rollover as the default; leaving assets in the employer plan may be the best option.
- Rydzewski says advisors should use a seven-step duty-of-care process to compare the current plan with alternatives before recommending a rollover.
- Cost should be evaluated, but he says a higher-cost option can still be justified by the client’s broader planning needs.
- The episode stresses that rollover decisions may be irreversible, so thorough analysis comes before implementation.
Notable quotes
“a rollover may not be required. The current course of action, which is remaining in the employer plan, is always one of the options to be considered”
“The guide points out that financial advice to rollover assets creates several material conflicts of interest that a professional must disclose or manage”
“And it applies to a rollover recommendation, the seven-step process for complying with the duty of care when providing financial advice”
“Some decisions are irreversible. So, the guide points out that financial advice to rollover assets creates several material conflicts of interest”
How the episode opens
The guide points out that financial advice to rollover assets creates several material conflicts of interest that a professional must disclose or manage. And it applies to a rollover recommendation, the seven-step process for complying with the duty of care when providing financial advice. Hello and welcome back to the Financial Advisor Technician podcast.
I'm your host, Adam Van Dusen. On today's episode, we're going to discuss rollovers of employer-based retirement plans and the issues that they can present to financial adviserss in fulfilling fiduciary responsibilities they have to their clients. For example, when a client tells their adviser that they're separating from their employer and want to know what to do with their 401k, an adviser's first instinct might be to recommend a rollover to an IRA that they manage.
Nevertheless, while this might be the best option for the client, such a recommendation can come with conflicts of interest and is only one of several potential courses of action. Whether it's leaving the assets in the employer plan, rolling the assets over to a new employer's plan, or taking withdrawal, which suggests that a methodical approach to this conversation can both ensure that advisers are fulfilling their fiduciary responsibilities and ultimately lead to greater trust with their clients. To help us dig deeper into this topic, I'm joined today by Leo Reeski, the general counsel and managing director of professional ethics at the CFP board to discuss the fiduciary considerations surrounding the rollover conversation, how CFP professionals can ensure they're fulfilling their duty of care and duty of loyalty to their clients, and to learn more about a guide to rollovers that CFP board recently published to help advisers fulfill these responsibilities.
So, welcome Leo and thanks for joining us here on the Financial Advisor Technician podcast.
Thank you, Adam.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- 401k rollovers
- ira recommendations
- fiduciary duty
- conflicts of interest
- retirement planning fees and taxes
Companies and tickers mentioned
- CFP Board
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Financial Advisor Success (Kitces), this episode and its artwork belong to Michael Kitces. Octagon is not affiliated with the show; this page is an independent summary.
