How New Rules On Your Retirement Money Can Help You

You might not know why you should care, but as of last summer, financial advisors and their firms faced more stringent rules as it relates to retirement rollovers. We ask Julie Meissner, founder and CEO of Treehouse Wealth Advisors in Walnut Creek, Calif., to explain why this change is important.

Light: Last year, the Department of Labor introduced new rules on how advisors handle their client’s retirement funds. Why is this important for us to know about?

Meissner: Under this rule, financial advisors just like us must provide their clients in writing specific reasons why a retirement plan rollover is in the participants’ best interests. Think about it. You and your spouse may have had a few career changes or switched jobs leaving your 401(k) benefits behind. It’s not uncommon and you’re likely thinking about all the retirement funds that seem like a distant memory. Rolling this money over or moving it into a different retirement investment vehicle may be in your best interest or it may not.

Light: Can you explain the different retirement plan rollovers?

Meissner: To start with the basics, the Labor Department defines a rollover as taking a distribution from a 401(k) plan and transferring it to another 401(k) plan; taking a distribution from a 401(k) plan and transferring it to an IRA; transferring money from an IRA to a 401(k) plan; transferring money from an IRA to another IRA; transferring money from one type of tax-qualified or ERISA-governed account to another.

Light: That’s a lot of money moving around, with funds that are important to your financial future. How does the new rule affect this scenario?

Meissner: That’s why among other obligations, financial advisors must make recommendations that are best for the client, charge reasonable fees and avoid ambiguous or misleading statements when giving advice. This means they should be held to the fiduciary standard of care. A standard we adhere to every day.

Light: So why should we care? Why is this important?

Meissner: Let’s use the 401(k) to the IRA example. Specifically, advisors need to show you the differences and create an analysis that includes alternatives to the rollover, fees and expenses associated with the employer plan and the IRA, whether the employer pays any share of administrative expenses, and the various levels of services and investments available through the plan and the IRA. Basically, a financial advisor needs to review all your options and show you why moving your money would be in your best interest.

Light: Is there a particular part of this new rule that makes it important?

Meissner: Yes, specific is the key word for why you should care about this new rule. Your advisors should provide specific reasons for your retirement funds to move based on your overall financial plan. This requires evaluating all the options available to you and knowing the ins and outs of your total financial picture. Ideally, your advisor should either already have a financial plan in place that they can fit this analysis into or gather information from you so they can review and then use that information to provide written recommendations.