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How to Analyze a Retirement Rollover

Questions to ask and key factors to consider in making a recommendation

Morningstar Staff

 

Financial advisors are under increasing regulatory pressure to determine whether a retirement rollover is in a client’s best interest. With that in mind, our researchers have developed a framework that advisors can apply to help them make an appropriate recommendation.

There are several factors to weigh and key questions that advisors can ask as they evaluate a client’s 401(k) plan against an IRA. Here's a look at them:

5 factors to consider in a retirement rollover

  1. Examine fees. Fees are important, but they don’t provide the full picture in a rollover decision. Make sure to weigh the potential benefits of the transfer against the costs. 

  2. Decide investment scope. Investors should have access to investments that can help them reach their goals. Consider which option could lead to the best possible portfolio. 

  3. Assess investment attributes. Look at the attributes of the investments in the 401(k) plan and the potential investments in the IRA portfolio. Investment attributes can be thought of as the long-term, risk-adjusted performance potential of the investment relative to the client’s goals. Find an option that is designed to maximize this.

  4. Evaluate the value of service. Your client should weigh the fees for advice against the value of the services provided. Moving to an advisor may cost less than existing plan fees, for example, but that could be because low-cost index funds are used in the IRA.

  5. Determine access to assets. Your client should weigh the fees for advice against the value of the services provided. Moving to an advisor may cost less than existing plan fees, for example, but that could be because low-cost index funds are used in the IRA. 

Tipping points in a retirement rollover decision

Retirement rollover decisions are complex and depend on the unique circumstances and preferences of each client. Some factors can be hard to assess and can tip a decision.

Download our paper for a visual breakdown of the factors advisors can consider while exploring a recommendation.

This blog post is adapted from our research paper  “To Roll or Not to Roll: A Framework for Implementing the DOL Fiduciary Rule for IRA Rollovers.”

Please see below for an important disclosure.

Learn more about how Morningstar can help you deliver best-interest advice during our webinar Wednesday, Dec. 13, 2017, at 1 p.m. CST.

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Morningstar Investment Management LLC is a registered investment adviser and subsidiary of Morningstar, Inc. This is for information purposes only and should not be considered financial planning, tax, or legal advice. Please consult a financial adviser, legal, and/or tax professional for advice regarding your personal situation. Morningstar Investment Management shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions or their use.  

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