Most financial advisors offer their clients casual IRA advice, which can take several forms.
The most common form is to integrate IRAs into a client's asset allocation program or portfolio review process. Other forms of casual advice include: suggesting conversions from Traditional to Roth IRAs, providing calculations or advice on minimum distributions, and advising on beneficiary changes.
None of these services typically generate new assets under management, product sales, or commissions – so they are not very lucrative for advisors. However, they can help to build client relationships and make clients' retirements more successful.
Most clients appreciate casual IRA services and are willing to pay for them, often through trail commissions. Under the Department of Labor's ERISA fiduciary definition, casual IRA advice compensated by trails will need to fall under the Best Interest Contract (BIC) exemption to continue.
That could mean increased liability, warranties and fee disclosures for financial firms and advisors.
Now that the DOL's adoption of the rule is finalized, you will want to examine your full book of IRA business and make strategic decisions.
You probably will be able to decide, on a client-by-client basis, whether or not to use the BIC exemption. Unless you are earning a threshold amount of trails from a client for casual IRA advice (e.g., $500 per year), it may no longer be prudent to continue as the advisor-of-record on these accounts.
The extra liability and work mandated by the BIC exemption will be too onerous to continue offering these services as a loss-leader.
Taking your name off the account and giving up the trail doesn't mean you must cast these clients and their IRAs adrift. For example, you can continue to offer clients IRA education, unconnected to investments or financial products.
You also can form a partnership with another advisor willing to offer casual IRA advice under the BIC exemption, with the understanding that the partner will respect your client relationships.
For some clients, it may be feasible to move casual IRA advice (as well as other services) under fee-based advisory relationships.
It's not too soon to talk with selected clients about casual IRA advice, and let them know your thresholds for continuing these services. Some clients may choose to consolidate additional IRA assets with you, to achieve the compensation you need to continue advice.
The clearer you are in setting and communicating your threshold income levels for casual IRA advice, the better. It's also important to let clients know why the relationship is changing – e.g., because DOL has decided IRA investors need more U.S. Government-mandated regulatory protection.
Read the DOL's fact sheet on the re-proposed ERISA fiduciary rule.
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