New Advisor Regulations: Income Discovery Can Help

March 22, 2022 | Stacy McDowell, Chief Product Officer

Recent legislative changes

Two significant pieces of recent legislation are shaping the current offering and future direction for delivering retirement decumulation solutions:

  • Regulation Best Interest (RegBI) and
  • Prohibited Transaction Exemption (PTE) 2020-02
  • RegBI

Effective June 30, 2020, RegBI requires advisors to act in their clients’ best interests when making an investment recommendation and enhances the advisor’s standard of conduct. RegBI is triggered when a recommendation is made to a client; this recommendation may be an investment strategy recommendation, a rollover, a distribution, choosing a fee or commission account, or other recommendation. The recommendation must have some level of specificity to the particular client and to a particular action that client would take, in contrast to general education that is non-specific in nature.

PTE 2020-02 

Also in 2020, the DOL adopted PTE 2020-02 (Improving Investment Advice for Workers & Retirees). The exemption defines any distribution from a retirement plan (i.e. a periodic distribution during retirement or rollover from a retirement plan to an IRA) as fiduciary advice. It requires an advisor to acknowledge fiduciary status in writing and disclose specific reasons the recommendation is in the client’s best interest. For a rollover, the advisor is required to factor in fees and expenses for investment options within the existing retirement plan and compare them with fees and expenses in the IRA in order to make the recommendation. 

Impact to Wealth Management advisors and firms

ICI estimated 2018 annual retirement plan rollovers into a Traditional IRA at $517B.
These assets have traditionally flowed to retail financial advisors, where they have been advised for a fee. 

However, RegBI and PTE 2020-02 are making it tougher to recommend a 401(k) to IRA rollover by mandating that an advisor compare expenses, fees and benefits of in-plan investment options – not only what the client is currently invested in, but what is available within the plan – with the proposed rollover account and its expenses, fees and benefits. 

Since the bar for an advisor to recommend a 401(k) to IRA rollover is now much higher, it impacts rollovers and encourages assets to stay in 401(k) plans post-retirement. In order to justify the 401(k) to IRA rollover, advisors advising new retirees will need to demonstrate through a cost-benefit analysis why their services provide increased value and are worth higher advisory fees. 

Demonstrating an advisor’s increased value

Income Discovery’s Income Planning 2.0 and Paycheck in Retirement capabilities can help advisors and firms meet the above two regulations in the following ways: 

  • Commonly used financial planning tools (FPTs) don’t model investment expenses and advisory fees, especially different fees per account. Using Income Planning 2.0, an advisor can model held-away 401(k) assets and compare those fees with a rollover IRA that may have higher fees for an advisor’s higher service level. Since Income Planning 2.0 includes this modeling, an advisor can quantify and show the result to the client. 
  • Advisors practice advanced strategies such as targeting an incremental effective tax rate for distribution from qualified accounts and tax-loss harvesting. However, their FPT is not able to demonstrate the value of such strategies. Income Planning 2.0 does this by capturing the net benefit to the client as higher annual safe retirement income. 
  • Delivering increased safe retirement income clearly demonstrates a client’s best interest. 
  • Income Discovery’s Paycheck module systematizes a client’s disbursals in retirement based on an optimal income strategy; this ensures that the DOL’s fiduciary advice standard is met for periodic distributions. 

Utilize Income Discovery’s Paycheck in Retirement and Income Planning 2.0 to meet these regulations while delivering a Full & Rich Retirement to your clients.

1 ICI – The Role of IRAs in US Households Saving for Retirement, 2021,

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