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Conflicts of Interest In 401(k) Retirement-Plan Rollovers Are Prevalent

The lawyers at Robert Wayne Pearce, P. A. are well aware of the conflicts of interest of financial advisors who recommend to prospective clients that they withdraw funds from their 401(k) retirement plans and roll them over into an IRA account at the brokerage firm when they terminate their employment. The Financial Industry Regulatory Authority (FINRA) has finally woken up and given notice to all registered financial advisors and their employers that the pitch to move funds to IRA rollover accounts must be “fair and balanced;” two words that are foreign to many financial advisors.

The securities industry regulator claims it will begin to crackdown on financial advisors giving false and misleading information to clients about their options with respect to their retirement accounts. The options that 401(k) participants usually have when the leave their employer include: leave the money in the current plan, roll over the assets to the plan of the new employer, roll over to an IRA, or cash out the value of the plan. Of course, each of these options has its pros and cons, depending on such factors as fees and expenses, required minimum contributions, tax consequences, and the specific financial needs and retirement plans of the investor. All of these factors are complex and lead many investors to seek out a financial advisor or broker-dealer. Whatever recommendations your financial advisor and/or broker-dealer may make regarding rolling over a retirement plan’s assets to an IRA usually involve securities recommendations subject to FINRA rules.

In many cases the financial performance and cost structure of 401(k) plans is far superior than any alternative offered by the registered representatives. The fee structure is generally more favorable as well. FINRA has warned the industry in a regulatory notice, NTM 13-45, that there should be no recommendation to a client who is leaving a company to transfer funds from their 401(k) plan into an IRA if it’s better to leave it alone or transfer it to the new employer. Any recommendations, including recommendations involving the rollover of retirement assets into IRAs, are recommendations subject to the FINRA Suitability Rule.

Many financial advisors troll the marketplace for company announcements of plant closings and areas of massive layoffs or early retirement programs to gain prospective clients.

This is a big market. Currently IRAs only account for one quarter of the almost $20 trillion retirement-asset market according to the Investment Company Institute. FINRA as well as the Department of Labor are concerned about the management or rather the mismanagement of retirement assets by either unscrupulous or incompetent financial advisors. We expect the Department of Labor to push for a fiduciary duty standard to all advisors handling IRA accounts and 401(k) plans.

FINRA has put the industry on notice that “any recommendation to sell, purchase or hold securities must be suitable for that customer any information and that investors receive must be fair, balanced and not misleading.” One key fact every investor should focus on is the fees and commissions that will be generated upon transfer to an IRA rollover account that would otherwise not be incurred.

Have you suffered losses in an IRA rollover account? Have you suffered losses at any other brokerage account due to unsuitable recommendations by your broker? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against stockbrokers who may have engaged in misconduct and caused investors losses.

The most important of investors’ rights is the right to be informed! This Investors’ Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over , Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors’ rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.