IRA Rollover

Archive for May, 2009

In order to avoid the fiduciary relationship, the financial advisor should:

• establish that the plan’s fiduciary (i.e., the trustee, investment committee or the adviser), or plan participant if a “self-directed” account, controls the decisions and does not mechanically follow the financial advisor’s buy and sell recommendations.

• provide the plan’s fiduciary or participant with several investment choices and, when available, provide published research materials as a basis for the exercise of the fiduciary’s own judgement in selecting securities for the plan’s portfolio.

• determine only the type and quality of issue (i.e., fixed income or equity) and provide information and recommendations.

• provide advice on overall portfolio composition, diversification, investment strategies and similar matters in the abstract while avoiding references to specific securities or the specific situation of the plan or participant. However, when discussing investment techniques (e.g., dollar cost averaging), the various risks and potential returns of different types of investments, diversification and asset allocation, a financial advisor may relate the various investment considerations to the specific choices offered under the participant’s plan.
  • For example, the financial advisor may explain which asset category each mutual fund offered by a plan falls into and even assist a participant in deciding how to allocate contributions. The financial advisor may not decide the participant’s asset allocation or recommend specific allocations. The financial advisor should impress upon the plan’s fiduciary or participant that they have an independent responsibility and, while the financial advisor will do his or her best to provide appropriate recommendations, the fiduciary should exercise independent judgment.