Incendiary Bloomberg Report Fuels Debate on IRAs vs. 401(k)s

By Fred Barstein • June 18, 2014 • 0 Comments

Adding fuel to the fire, an attack on the IRA rollover industry by Bloomberg cites numerous examples of advisors preying on retirees rolling their 401(k) money into IRAs. One expert claims that IRAs are the “Wild West,” with limited oversight and regulation. The report focuses on one advisor who had built a business working with retiring AT&T employees and ended up with 37 FINRA complaints.

With $6.5 trillion in assets, IRAs are an attractive market for advisors. Rollovers from DC plans yield more than $300 billion annually, with higher fees and less technical experience required to serve the market. Indeed, the most popular Super Bowl ads are for cars, beer and IRAs.

Though there was nothing really new in the Bloomberg article, it is bringing to light the question of whether DC participants are better off keeping their money in the plan, which may have lower fees, better oversight and access to an advisor chosen and monitored by the employer. 

Three factors — the GAO report last year about misleading statements by IRA providers about fees, the DOL’s fiduciary rule (which would make advisors working on most IRAs fiduciaries) and last December’s FINRA notice about the suitability of rollovers — are leading the press, regulators, Congress, plan sponsors and retirees to question the whole IRA rollover industry. Though DC assets may generate substantially lower fees and practically box out a large group of advisors who work on IRAs but not DC plans, some are making the strong argument — as Bloomberg does — that retirees might be better off leaving their money in a DC plan rather than rolling it over.

Fred Barstein is NAPA Net’s Editor in Chief.