Can I Roll a 401k Into a Brokerage Account
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The One Reason to Nix A 401(k) Rollover to a Broker
I am an author, speaker and journalist specializing in investor and consumer protection.
Brokerage commissions eat up your retirement money faster than the market will. Remember that when anyone suggests that you roll over your 401(k) balance into a brokerage account.
By and large, brokers are not financial planners. They generally have no fiduciary/legal responsibility to do what's right for you. They are in the business of generating commissions by selling you products you don't need. Just say no to their sales pitches.
Although I've been railing on this subject for years, a recent BloombergBusinessweek piece by John Hechinger brilliantly tells the story: About one-third of a trillion dollars is being rolled over into brokerage accounts and putting retirees at needless risk of losing money.
While retirees can generally leave their savings in 401(k) plans, financial firms entice them with cold calls, Internet ads, storefront signs and cash incentives to switch to IRAs, " Hechinger writes. "They tout the advantage of the IRA's wide variety of investment choices over the typical 401(k) plan's limited menu. Yet that appeal can also be a pitfall for retirees offered expensive and high-risk investments. IRAs often charge higher fees than those associated with 401(k) plans, giving brokers an incentive to promote rollovers.
What do brokers like to sell? Private real estate investment trusts. Structured products. Proprietary mutual funds.
While you may not know what any of these products are, they all have one thing in common: high fees and generous sales commissions. Dishonest brokers relish in the fact that most people don't understand how these products work. All they have to do is promise a higher return and collect their money.
Of course, not all financial advisers are exploiting retirees. There are ways to find decent advisers who won't fleece you. Here's the way to avoid trouble:
* If you need financial advice, employ a fee-only certified financial planner. Make sure they are not selling you anything from which they will derive a commission or fee. You can find referrals here.
* Ignore most titles. Many brokers claim to be "retirement specialists." Only financial advisers who are fiduciaries -- registered investment advisers, certified planners and some accountants -- will take legal responsibility for their advice and put your needs above theirs.
* If you don't need advice, go direct. All mutual fund and discount brokerage houses allow you to open IRAs and may provide some advice. Invest in their lowest-cost, no commission exchange-traded and mutual funds.
* Go with a robo-adviser. Many services are online and provide low-cost portfolios that are tailored to your needs. Consider Wealthfront, Betterment and Financial Engines as solid alternatives to brokers. They can provide advice on risk management and portfolio construction. They're not in the business of selling investments.
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John F. Wasik is a speaker, journalist and the author of Keynes's Way to Wealth: Timeless Investment Lessons from the Great Economist and 13 other books. He writes regularly on personal finance and investing for Reuters, The New York Times and Morningstar.com.
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Can I Roll a 401k Into a Brokerage Account
Source: https://www.forbes.com/sites/johnwasik/2014/06/25/the-one-reason-to-nix-a-401k-rollover-to-a-broker/
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