Who Is a Fiduciary When You Roll Over a 401(k)? ERISA's Five-Part Test, Explained
Fiduciary is one word with two legal tests behind it. The Advisers Act governs your adviser; ERISA governs your workplace plan. The rollover is where the two meet, and it is the moment most retirement savers assume they are protected and are not sure.
Is my advisor a fiduciary when they recommend rolling my 401(k) into an IRA?
Only if one of two things is true: the adviser already owes you a fiduciary duty under the Investment Advisers Act as a representative of a registered investment adviser, or the advice meets all five parts of ERISA's test for an investment-advice fiduciary (advice about securities, on a regular basis, under a mutual understanding, that serves as a primary basis for your decision, and is individualized to you). A one-time recommendation from someone with no ongoing relationship to you may satisfy neither. The way to know is to ask for fiduciary status on the rollover itself, in writing, before the paperwork is signed.
Why fiduciary means two different things.
The Advisers Act and ERISA each define the word. They do not define it the same way.
Under the Investment Advisers Act of 1940, a registered investment adviser owes clients a duty of care and a duty of loyalty across the whole advisory relationship. Care means advice based on a reasonable understanding of your objectives and situation. Loyalty means the adviser cannot place its own interest ahead of yours and must eliminate or fully disclose every material conflict. The SEC enforces it, and the duty follows the adviser wherever the advice goes, including advice about a workplace plan.
ERISA, the law that governs employer retirement plans, has its own definition. A person is an investment-advice fiduciary to a plan or a participant only if the advice meets a five-part test that dates from the Department of Labor's 1975 regulations. The Department has tried more than once to broaden that definition so that a single rollover recommendation would count; the most recent attempt, the 2024 Retirement Security Rule, was challenged in court, and the five-part test is the standard to plan around. Confirm the current status with your adviser or attorney, because it has moved before.
The practical consequence: a broker who meets you once, recommends moving your 401(k) to an IRA, and never advises you again may not be an ERISA fiduciary for that recommendation at all. The recommendation is still subject to Regulation Best Interest. It is not subject to the fiduciary duty most people picture when they hear the word.
ERISA's five-part test.
All five must be met. The second and fourth are where rollover advice usually fails the test.
Advice about securities or other property
A recommendation to buy, hold or sell, or about how to invest the money. Advice to roll over, and what to do with the proceeds, qualifies.
On a regular basis
Advice that is ongoing rather than a single transaction. A one-time rollover recommendation from someone you have not worked with before, and will not work with after, often fails here.
Under a mutual agreement or understanding
Both sides understand that advice is what is being provided. A sales conversation with no advisory engagement behind it may not establish this.
A primary basis for your decision
You are relying on the advice to decide. Where there is no ongoing relationship, this is hard to establish and easy to deny later.
Individualized to you
The advice is based on your particular needs, not a general recommendation. Most real advice meets this part; the first four are the filter.
An investment adviser representative who already has an advisory relationship with you generally meets all five parts on a rollover, because the advice is regular, mutual, relied on and individualized by the nature of the engagement. The gap exists for one-off recommendations. That is the situation to recognize when a rollover is proposed by someone you met at a seminar, through an employer transition, or on a cold call.
The rule that governs paid rollover advice.
If an adviser is a fiduciary on the rollover and earns compensation from it, this exemption sets the conditions.
Moving money from a plan to an IRA usually changes what the adviser is paid, which is a prohibited transaction under ERISA unless an exemption applies. Prohibited Transaction Exemption 2020-02, in effect since 2021, is the one most advisers rely on. Its conditions are the useful part for you: the adviser must acknowledge fiduciary status in writing, give advice that is prudent and loyal, charge no more than reasonable compensation, make no materially misleading statements, and document the specific reasons the rollover is in your interest, considering the alternatives, before it happens.
That documentation requirement is the lever. The alternatives to a rollover are staying in the plan, rolling to a new employer's plan, or taking a distribution, and a fiduciary relying on the exemption has to compare them: investment options and costs in each, services available, plan-level protections, fees you would pay in the IRA, and your own circumstances. If no one has shown you that comparison, either the adviser is not relying on the exemption or the work was not done. Ask for it. 401(k) and IRA rollovers describes how that comparison is built at KBR, where the stay-or-move question is answered before any transfer is recommended.
Four misconceptions, corrected.
Each is common. Each has a cost.
"Anyone called a financial advisor is a fiduciary."
The title is not licensed. Registration as an investment adviser carries the duty; the title does not. Check the registration.
"Once a fiduciary, always a fiduciary."
Under the five-part test, fiduciary status attaches to advice that meets the test. A single rollover recommendation may not create an ongoing duty for the IRA afterward unless an advisory relationship exists.
"Fee-based means fee-only."
Fee-based means client fees plus possible commissions. Fee-only means client fees and nothing else. Item 5 of Form ADV Part 2A says which.
"My advisor told me they are a fiduciary."
A verbal statement is not registration and not a written acknowledgment. Confirm it on the SEC's Investment Adviser Public Disclosure site and get it in the advisory agreement or the rollover acknowledgment.
Hollis is the kind of town where this question arrives with a specific shape. Many of its pre-retirees spent careers at the technology and defense employers along Route 3 and in Nashua, and a large 401(k) from one of them is often the biggest single asset in the household when retirement comes into view. For Hollis households, the rollover decision and the fiduciary question behind it are the first thing a financial advisor should settle, and they sit inside the broader retirement planning and retirement income planning work rather than ahead of it. KBR Retirement & Investment Solutions serves Hollis from Londonderry, about twenty-five minutes east, and by video.
How to confirm fiduciary status before a rollover.
Four steps, all in the public record or in writing.
- Search the person and firm on the SEC's Investment Adviser Public Disclosure site and FINRA BrokerCheck
- Read Form ADV Part 2A, Item 5, for compensation; Part 2B for the individual who will advise you
- Ask whether they are a fiduciary at all times, and on the rollover specifically; get both in writing
- Ask for the written comparison of staying in the plan versus rolling over, with costs in each
- Ask who, other than you, is paid if the rollover happens
- Bring your plan statement, the plan's fee disclosure and your most recent tax return to the conversation
A fiduciary on the rollover and on the relationship.
An independent, fee-only registered investment adviser in Londonderry, New Hampshire.
KBR Retirement & Investment Solutions, LLC is a registered investment adviser, paid only by its clients, that sells no products. Bernie Ross, in financial services since 1997, is the only person who advises clients, and he owes the fiduciary duty under the Advisers Act across the whole relationship, including the rollover question. The stay-or-move comparison is done before any transfer is recommended, and the fiduciary acknowledgment and the reasons are documented in writing. The one conflict that remains, that assets moved into a managed account become assets the fee is charged on, is stated in the Form ADV brochure linked from Disclosures and raised in the first conversation. Retirement income planning is where the rollover fits once the decision is made.
Common questions.
Are all financial advisors fiduciaries?
No. Financial advisor is not a licensed title. An investment adviser representative of a registered investment adviser owes a fiduciary duty under the Investment Advisers Act. A broker-dealer representative is held to Regulation Best Interest at the time of a recommendation. Under ERISA, a separate five-part test decides whether someone is a fiduciary to a workplace plan or to advice about moving money out of one. The same person can be one, both or neither depending on the account and the capacity.
Is an advisor who recommends a 401(k) rollover a fiduciary for that advice?
Under ERISA's five-part test, a one-time rollover recommendation from someone you have no ongoing relationship with may not establish fiduciary status, which is the gap retirement savers most often fall into. An adviser who already owes you a fiduciary duty under the Advisers Act, or who meets all five parts of the test, is a fiduciary for the advice. Ask directly whether they are acting as a fiduciary on the rollover itself, not only on the account afterward, and get the answer in writing.
What is PTE 2020-02?
A Department of Labor prohibited transaction exemption that allows a fiduciary adviser to receive compensation that would otherwise be prohibited on a rollover, provided the adviser acknowledges fiduciary status in writing, gives advice that is prudent and loyal, charges no more than reasonable compensation, avoids misleading statements, and documents why the rollover is in your interest. If an adviser relies on it, they must put the fiduciary acknowledgment and the reasons for the rollover in writing to you.
How do I check whether my advisor is a fiduciary?
Search the person and the firm on the SEC's Investment Adviser Public Disclosure site and on FINRA BrokerCheck. Investment adviser registration carries the fiduciary duty under the Advisers Act. Read Form ADV Part 2A for compensation and conflicts. Then ask for fiduciary status, at all times and on the rollover specifically, in writing.
Can a fiduciary advisor still have conflicts of interest?
Yes. Fiduciary duty does not eliminate conflicts; it requires the adviser to eliminate them or disclose them fully and fairly so you can give informed consent. A fee-only adviser charging a percentage of assets still has a conflict on a rollover, since the assets rolled into an IRA become assets the fee is charged on. The honest version is disclosed in Form ADV and acknowledged in writing when the rollover is recommended.
What this connects to.
Fiduciary vs. broker-dealer vs. financial planner
What each title means and which legal standard sits behind it.
How to verify a fee-only fiduciary planner
Six steps in the public record, including Form ADV Item 5.
Retiring in three years in NH or MA
The workplace-plan decision as one of five that cannot wait.
About the author
Bernie Ross is the founder of KBR Retirement & Investment Solutions, LLC, an independent, fee-only registered investment adviser in Londonderry, New Hampshire. He has worked in financial services since 1997 and personally handles the planning and services every client relationship. Read more about Bernie.
This article is general information and is not personalized investment, tax or legal advice. It does not consider your individual circumstances. Consult your CPA or attorney on tax and legal matters. Advisory services are offered through KBR Retirement & Investment Solutions, LLC, a registered investment adviser. Registration does not imply a certain level of skill or training. See Disclosures.
Settle the fiduciary question before the transfer.
Bring your plan statement and its fee disclosure. The first conversation costs nothing and commits you to nothing.
