New rule on retirement savings is in your best interest
Published 1:30 am Tuesday, June 6, 2017
Investors are about to get some major help in determining which financial advisers are working in their best interest.
After a long battle, which still might not be over, retirement savers will get some common-sense protection that should bring to light conflicts of interest that could cost them dearly.
Here’s some background on the new fiduciary rule that goes into effect June 9.
The Labor Department, under the Obama administration, proposed that investment professionals, when giving advice about retirement plans, such as a 401(k), be required to put their clients’ interests first. I bet you didn’t know that wasn’t already the prevailing standard.
An investment adviser who has a “fiduciary duty” will have to act in the best interests of his or her clients. Advisers who are not “fiduciaries” don’t have to meet this standard. Rather, they just have to make sure their advice is “suitable” for their client. This type of conflicted advice has cost investors $17 billion annually, according to the White House Council of Economic Advisers.
Here’s what investors should expect, according to Barbara Roper, director of investor protection for the Consumer Federation of America.
Fewer rollover recommendations. “Because advisers will only be permitted to recommend a rollover where that is in the customer’s best interest, they will either have to refrain from recommending a rollover where the workplace plan is the better option, or sweeten the deal in terms of the investments they roll investors into.”
You may be encouraged to move to a fee-only account. “Though most brokers and insurers have decided to continue to offer commission-based retirement accounts,” Roper explained, “some firms have decided the easiest way to reduce conflicts and comply with the rule is to move retirement money to fee accounts.” Under a fee-based account, clients might pay an hourly rate, a flat fee or be charged a fee based on a percentage of assets being managed, Roper added.
Some firms may drop smaller accounts. “We don’t know how many will actually follow through on this threat, but it is a possibility,” Roper said. “If this happens, investors need to know that there are firms that are available who will serve even the smallest accounts under a fiduciary standard. It’s a nuisance to have to move, but do you really want your money with a firm that will only ‘advise’ you if they can continue to profit unfairly at your expense?”
There is much to learn about the rule, and Roper has put together an explainer for investors who had been working with non-fiduciary advisers. You can find it at: http://ow.ly/kNpq30cnb0p.
Certainly there may be changes to how you receive and pay for retirement investment advice. But keep in mind that they are, by and large, to reduce conflicts of interest.
© 2017, Washington Post Writers Group
