Rollover Recommendation

Sixty-two-year-old Renata Ochoa asks whether to leave $740,000 in her former employer's 401(k), where total costs run about 0.28% a year, or roll it to an IRA managed by her adviser for 1.05% a year. The adviser recommends the rollover. To meet the duty of care, the adviser must:

1. A.Recommend the lower-cost option, because a fiduciary must always choose the least expensive alternative availableCost is a major factor but not the only one. Broader investment choice, planning services, or consolidation can justify a higher fee if documented.
2. B.Document a comparison of costs, investment options, and services and show a reasoned basis that the rollover serves the client despite the higher feeCorrect. The adviser must be able to show the analysis behind the recommendation, not merely that the client was told the fee.
3. C.Disclose the fee difference in writing, after which the client's informed consent satisfies the obligationConsent addresses the conflict of interest. It does not supply the reasonable basis the duty of care demands.
4. D.Obtain the former employer plan's written consent before recommending that assets leave the planNo plan consent is required for a participant-directed distribution, so this invents a step that does not exist.

Why: A rollover recommendation is an investment recommendation, and because the adviser earns a fee only if the assets move, it carries a built-in conflict. The duty of care requires a documented comparison of the two options on costs, available investments, services, and other relevant features, and a demonstrated basis for concluding the rollover is in the client's interest despite costing roughly four times as much. The clue is the large and explicit fee differential. Review rollover recommendations and the duty of care.

A representative urges a 58-year-old departing employee to roll her 401(k) into an IRA at his firm. Under Regulation Best Interest, this advice:

1. A.Is covered only if she qualifies as a senior investorReg BI protects all retail customers - age rules like the 55-plus plan provision affect the analysis, not the coverage.
2. B.Is not covered by Reg BI because no specific security has been recommendedReg BI expressly covers account-type and rollover recommendations, securities selection or not.
3. C.Is a recommendation subject to Reg BI - he needs a reasonable basis weighing costs, services, penalty-free withdrawal ages, creditor protection, and RMD treatment in plan versus IRACorrect - rollover advice is a covered recommendation requiring a documented, multi-factor best-interest analysis.
4. D.Is proper so long as the IRA offers more investment choices than the planMore choices is the classic single-factor rationalization - the analysis must weigh costs, access, and protections too.

Why: A rollover recommendation is itself a recommendation covered by Reg BI - even before any security is chosen. The representative needs a reasonable basis considering costs, available services and investments, the plan's penalty-free withdrawal provisions (such as separation from service at 55 or older), creditor protections, and RMD treatment - and more choices alone is not a sufficient basis. The clue is her age: 58 means the plan may allow penalty-free access an IRA would not. Review: account and rollover recommendations.