DOL Warns Retirees: Watch Your Assets!

You’ve saved and saved your money to build a hefty retirement savings account. You’ve trusted your retirement investment manager to build those assets. Whether you’re an employee saving in the company’s 401(k) or a business owner saving in your own retirement savings vehicle, if you’ve got a competent provider and the discipline to save, you should enter retirement with substantial assets.

As you approach retirement, though, you face the ultimate test. Do you keep the financial adviser who helped build your portfolio, or do you shop around to find some other partner rather than “dance with the guy that brung ya”? (That’s a John Wayne quote from 1944’s The Fighting Seabees.)

Here’s something you might not realize. Those “dance partners” know you’ve got a wandering eye. Worse, they know it’s easier to convince you to dance with them, even if it’s not in your best interest to do that.

Guess who falls into this target demographic?

“The typical target is someone retiring from the workforce and unsure what to do with their 401(k) or 403(b),” says Eric Presogna, Owner and CEO at One-Up Financial in Erie, Pennsylvania.

Workers about to call it a career generally have accumulated large nest eggs. Is it any wonder that this age group is most attractive to the investment industry?

“Retirees who are most likely to be the focus of those pushing financial product sales are often those who are perceived as having a significant amount of assets, such as those who have saved a large amount for retirement or have inherited wealth,” says Andrew Lokenauth, Founder of Fluent in Finance in Tampa.

It’s not just because retirees have substantial assets. It’s also their state of mind. It’s a time when life is changing, and unknowns produce great anxiety. This makes you more susceptible to making hasty decisions.

“We typically see people between the ages of 55-70 being targeted for these products because that is when most people have ‘money in motion’,” says Taylor Kovar, CEO at The Money Couple in Lufkin, Texas. “This means they are retiring and need to figure out something to do with their retirement dollars.”

Reputable financial professionals are aware of these tactics and do their best to protect their clients from falling victim to them. Still, the allure is strong.

“Most of our clients are the ‘Millionaire Next Door’ Baby-Boomers or older retirees ages 65 to 90,” says Coconut Creek-based financial author Craig Kirsner. “This demographic is usually looking for something to secure their wealth in, so when someone shows them a supposedly ‘risk-free, no fee’ magic solution, they see an answer to their prayers without actually knowing what they are buying.”

Kirsner refers to the 2010 book The Millionaire Next Door, written by Thomas J. Stanley and William D. Danko, two professors who have studied wealth. They describe this archetype as someone who has lived modestly and, in the process, has accumulated an impressive amount of wealth. It is this same modesty that leaves them vulnerable.

“The ‘Millionaire-Next Door’ is just one wrong move away or one big event away from being in the danger zone financially,” says Joe Allaria, Partner and Wealth Advisor for CarsonAllaria Wealth Management in Glen Carbon, Illinois. “With proper planning, many can live a fulfilling and successful retirement, but because these people have that fear of one big thing going against them, they are prime targets for product-driven financial sales reps.”

You may recognize one of the more popular tactics used by these sales reps.

“So many ‘come eat a free steak and learn how you can guarantee your income for life’ type seminars,” says Kovar. “Investors think that they then owe the advisor since the salesman provided them with a free meal. In reality, the meal isn’t being paid for by the advisor. It is being paid for by an insurance or mutual fund company. It’s a common way to prey on people’s insecurities and fears about the future, so you typically see a lot of ‘risk-free,’ ‘no fee,’ ‘guaranteed’ type language in their pitches.”

You don’t have to be nearing retirement or already retired to fall within the sites of these product pushers. Many other types of individuals have similar traits that make them a good mark.

“The characteristics of a typical retiree most likely to be targeted by financial product salespeople are not necessarily specific to retirees,” says Mina Tadrus, CEO of Tadrus Capital LLC in Tampa. “However, some common characteristics that may make a retiree more vulnerable to being targeted include a lack of financial knowledge or expertise, a lack of time or energy to properly research and evaluate investment options, and a need or desire for income or growth from their investments.”

Finally, the time of year also presents a psychological opportunity for those seeking to pry your hard-earned retirement assets from you. It’s when everyone starts making “resolutions” that you may find yourself under significant social pressure to “do something” even if you don’t need to.

“Many people like to press the ‘easy button,’ whether it be for weight loss or investment success,” says Stephen Taddie, Partner at HoyleCohen, LLC in Phoenix. “I see three basic types of retirees that would be a target for product sales: 1. People who grew wealth mostly through a company 401(k) plan where the investments were managed for them; 2. People who have either tried to manage their money themselves or had engaged a firm/individual to do it for them, and like this past year, lost money or underperformed, and they want a ‘better’ solution; and, 3. A recently widowed or a divorced spouse whose partner managed the finances.”

Now, here’s the tricky part. For the average person, it’s very difficult to distinguish between an honest pitch and a questionable sales spiel. You can’t even rely on recognizable firms because not all firms are required to follow the same strict regulations.

The Securities and Exchange Commission and the Department of Labor are trying to remedy that. Recently, the DOL created a Rule that requires any financial firm, including brokers who previously were not subject to this, to treat all IRA Rollovers as a fiduciary act.

What does this mean for you? It means if you’re being solicited by any financial professional, even one from a well-known firm, that individual must provide you with information explaining why you should not move your assets from where they are. This could—and probably should—include having you talk to the firm where your assets are currently held.

There’s more. By liquidating one retirement account and transferring the cash into another, ERISA attorney Fred Reish writes in his blog post, “The Department of Labor considers a rollover recommendation to be a recommendation to liquidate the investments in a participant’s 401(k) account or to transfer (and change) securities.”

Furthermore, Reish says, “This may explain why the DOL, SEC and FINRA all expect broker-dealers and investment advisers to have information about the investments held in a participant’s account, that is, how can a ‘sell’ recommendation be made without knowing the investments that the recommendation covers.”

All this applies even where it is in your best interest to change advisers. It’s for your own protection. In a May 2022 article, financial columnist Bob Veres wrote, “the DOL regards any recommendation to rollover assets from a 401(k) plan not managed by the advisor, to an IRA to be a prohibited transaction – unless [the advisor] can document, to the client and (probably) the satisfaction of a future auditor, that the rollover is in his/her best interests.”

At the very least, the selling firm is required to give you a written disclosure describing the complete analysis as to why rolling over your retirement assets is in your best interests. If this does not occur, that little red light should go off in your head.

“There are many well-regarded regional and national brand name storefronts that do not follow fiduciary standards, and this may be in direct conflict with what is in the best interest of prospective clients,” says David Rosenstrock, Director and Founder of Wharton Wealth Planning in New York City. “Most financial advisors have to sell investments that are suitable for clients, but fiduciaries must act with a higher standard of care. As a result, fiduciary advisors are often less expensive because client accounts aren’t charged commissions. A major benefit of working with a fiduciary advisor is that they always look out for the client’s best interests and disclose any conflicts that may negatively affect the client (which relates to the duty of loyalty). This can have a profound impact on the decisions you and your financial advisors make in collaboration and on what they might have you do to preserve or grow your wealth. A fiduciary advisor is important if you plan to give an advisor discretionary control of your account, if you aren’t sure what you need, and if you want sound, objective advice. When seeking wealth-planning strategies, it is important to bear in mind that not every firm providing financial advice is a fiduciary advisor.”

When you retire, there are many good reasons to roll your retirement savings over into a privately managed IRA. You just need to make sure you’re doing it for your sake, and not for the sake of someone’s sales quota.