We’ve got some great news – the Department of Labor is finally requiring all financial advisors to adhere to the same level of transparency and fairness that we have with you. In April of 2017, the new DOL Fiduciary Rule is going into effect.
You may wonder what it means for your IRAs and 401(k) accounts. Here is what you need to do: nothing. At least that’s true for the accounts we service for you. If you have retirement accounts elsewhere, it might be a good time to discuss potential impact with us.
The new rule requires some financial services professionals to change their compensation structure to align with client interests. We already adhere to this high standard. You may hear advisors talking about a “new higher standard for retirement accounts.” These firms may be new to the idea of putting you first.
We’ve always put you first and we always will. That’s #1 in our 13 Guiding Beliefs. If you have any questions about the your retirement accounts don’t hesitate to contact us. We’ll be happy to talk about your situation as always.
While the Fiduciary Rule has the objective of protecting consumers and improving practices of the financial industry, I fear the legislation will create additional confusion for investors. Here’s what you might not know about the DOL Fiduciary Rule:
1) It only applies to retirement accounts. The DOL does not have jurisdiction over taxable accounts. That falls to the SEC, FINRA, state securities regulators, state insurance regulators, and banking regulators like the FDIC. There is no one regulator that watches over all investing, finance, and insurance activities. Broker/Dealers will not be required to act as Fiduciaries for your taxable brokerage accounts under the rule. If you have multiple accounts, the rule may apply to some of your accounts and not others.
2) In my opinion, being a Fiduciary means that I should find the best possible solution for my clients, with an objective, independent eye. Under the new rule, a captive insurance agent (one who represents a single company), is also required and presumed to be a Fiduciary. But will that agent recommend another company if it offers a superior product? Will an agent recommend a product with a lower commission, if it might be a better solution? It seems like the potential for a conflict of interest has not changed, in spite of the new label of “Fiduciary”.
3) Merrill Lynch announced this week that their advisors must refer at least two clients a year to other units of Bank of America or have their pay cut by 1%. (Read the Marketwatch article here.) This is not illegal under the Fiduciary Rule, because it is disclosed. What if other banks offer better mortgages, CDs, or other products? That doesn’t sound like putting clients’ needs first to me. Wells Fargo Advisors have a similar program, as I’m sure many big firms do. We do not accept compensation for referrals and never have.
4) As a result of the cost of implementing the new Fiduciary Rule, many firms are dropping small clients and implementing higher account minimums. According to the Investment Company Institute, the DOL Rule is already depriving investors of financial advice.
5) The DOL does not directly enforce this legislation. While the SEC and states have thousands of auditors and field agents who visit, inspect, and enforce securities law, the DOL does not have a team tasked with ensuring Fiduciary compliance. Rather, the Rule will rely on investors to file class action lawsuits. If an advisor violates the Fiduciary Rule, forget getting assistance or relief from the DOL – you need to hire an attorney.
This process seems to me to be a poor way to protect consumers, and very expensive, as attorneys will take a significant portion of any award in court. For firms, we face the potential for frivolous lawsuits, an expense which will have to be passed on to consumers.
I am all in favor of consumer protection. But the new Fiduciary Rule will make it harder for investors to really tell who is truly acting in their best interest.
If you have an IRA in a commission-based account, you can expect your advisor to be moving your account to a fee-based account this year. Instead of having one account which is under a Fiduciary standard, I’d suggest you consider working with a holistic financial planner who will look at your entire financial picture when making recommendations in your best interest.
