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Momentum Builds to Place IRAs Under Fiduciary Umbrella

July 05
23:31 2011

Phyllis Borzi took on opponents of the DOL’s new fiduciary definition when she bluntly said, “the level of protection in the IRA marketplace for people against financial conflicts of interest is of concern” (see “DOL’s Borzi Fights Critics of Proposed Fiduciary Rule,” AdvisorOne, June 28, 2011). She also spoke of the “seismic shift” that has 509023_85525128_sheep_stock_xchng_royalty_free_320assets flowing from 401k plans to IRAs. Borzi made it clear the industry needs to expect IRAs to be included under the protection of the fiduciary umbrella.

And, truth be told, the industry recognizes this need. Here’s the dilemma. While it may be in the 401k plan sponsor’s best interest to encourage ex-employees to take their retirement assets with them when they go out the door, in practice, these former employees often find themselves out of the frying pan and into the fire.

Currently, IRA advisers are not required to be fiduciaries. Coincidentally, the DOL does not require all 401k advisers to act as fiduciaries. The difference in the 401k environment, however, is regardless of the status of the adviser, the Plan Sponsor must act as a fiduciary. Therefore, ex-employees who leave their assets in a 401k plan are guaranteed of having at least one fiduciary looking out for them. On the other hand, those left to fend for their IRAs themselves do not have that luxury. Nevin Adams, Editor-in-Chief at PlanSponsor Magazine, expresses concern for those investors who leave their 401k plans when he says, “In my experience, most are sheep heading for the (financial) slaughter.”

A recent investor survey may confirm this feeling of doom on the part of Adams. According to J.D. Power and Associates (“Clients confused about standards – and don’t really care: Report,” InvestmentNews, June 16, 2011), most investors can’t tell the difference between the fiduciary standard and the suitability standard. Worse, the report reveals many don’t care, either. If the sheep don’t care about getting slaughtered, then it doesn’t take much effort for the wolves to dine regularly.

Fee-Only Financial Adviser and popular financial writer Roger Wohlner, CFP® feels IRA investors don’t have to wait for the DOL to update their definition of fiduciary. He’s outlined several ways for investors to protect themselves. His primary focus deals with fees, since these arrangements are generally the source of many conflicts-of-interest. He describes three methods of compensation: “commission”; “fee-based”; and “fee-only.” Of the three, only “fee-only” does not include commissions, of which he says “there is an inherent potential conflict of interest in this [commission] arrangement in terms of the advice you might receive.” (for more information, read his article “Retirement: How You Compensate Your Financial Adviser, and Why It Matters”).

Wohlner told Fiduciary News IRA investors should “understand how the advisor is compensated, and ask lots of questions.” One of the more important questions, he points out is “will the adviser state in writing that the adviser will act as a fiduciary?” We asked him “What’s the best way for today’s IRA investors to confirm their adviser is a fiduciary?” Wohlner, a member of NAPFA (the National Association of Personal Financial Advisors) suggested, with a smile no doubt, IRA investors hire a NAPFA registered advisor, since “we all sign/affirm our fiduciary status every year upon renewal.”

In all seriousness, all Registered Investment Advisers must act as a fiduciary for their clients. Unfortunately, in the last generation, we’ve seen a proliferation of dual registrants – individuals registered both as brokers and as Registered Investment Advisers. The only way to have an absolute certainty your adviser will act as a fiduciary on your behalf is to get it in writing. Many advisers include this fiduciary language in their contracts. Confirming the inclusion of this language seems like the most reasonable way for the lambs to sleep comfortably with the lions.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


  1. Nancy
    Nancy July 06, 05:48


    I am a member of some financial communities. I came across your website: and found it very informative and helpful. I would like to send you an article as a guest post (relevant to your site).

    It will be my pleasure if I can contribute some quality content. Please kindly let me know how and where should I send you the article.

    Waiting for your quick response.

    Thanks and regards,
    Nancy Smith.

  2. Christopher Carosa, CTFA
    Christopher Carosa, CTFA Author July 06, 12:02


    Thank you very much for the offer. We do accept guest posts. Check out the submission guidelines (in the navigation bar above the banner on the site) and send them in. We’ll take a look and let you know.



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