Householding of brokerage accounts is a common practice. Clients like it because they can get reduced fees by aggregating all of their accounts. Broker-dealers like it because they get more assets to manage. But when retirement accounts are involved, broker-dealers need to be mindful of special rules that can adversely affect their clients…because unhappy clients don’t tend to remain clients for long.

The problem occurs under the prohibited transaction rules of ERISA and the Internal Revenue Code. They say that a fiduciary (i.e., the person in control of the account – the investor) can’t use retirement assets to obtain a personal benefit. With householding, the client gets a personal benefit when the combined value of both his or her retirement and personal accounts hits a breakpoint that reduces the fee on the personal accounts. In other words, the investor gets a personal benefit from the use of retirement assets.

Continue reading “Householding Accounts – Avoiding a Prohibited Transaction”