“For many kinds of investors, ETFs are the cheapest, most tax efficient, most flexible products on the market”.
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But how much did it cost you to have someone manage your retirement savings accounts?
The financial services industry pushed back hard against the regulation, arguing that, in addition to cutting into broker pay, it would limit the menu of investment options for customers – particularly low-income Americans.
Long-anticipated rules from the Labor Department that shape how stockbrokers handle retirement savings are out, and some analysts say that they’re not quite as strict as some had expected. It charges clients a flat fee for advice so there’s no conflict of interest.
Don’t let words like “fiduciary” standard let your eyes glaze over.
“While the rule backed down from some of the more vigorous parts of early proposals, it makes the important change: Most advisors will become true fiduciaries”, Nadig said. Retire in peace. That’s the goal. Brokers, who typically perform the same functions as registered investment advisers but are regulated and licensed differently, generally need only recommend investments that are “suitable” for clients (a lower standard than the fiduciary standard), though they must act as fiduciaries in some situations.
The Labor Department cast a wide net.
The White House Council of Economic Advisers has estimated that every year conflicts of interest cost IRA savers roughly billion in foregone returns, according to the Department of Labor. And it allowed for an exemption of advisers to small businesses and their employees if the company’s 401(k) plan has less than $50 million invested. “NAIFA is in the process of completing an in-depth analysis of the rule and will continue to provide training and education to help our members deal with the rule’s new requirements and restrictions”.
Ohio U.S. Sen. Sherrod Brown, a Democrat, had a similar reaction. “It has the potential to really change the way advice is delivered to retail investors”, said Barbara Roper, director of investor protection at the Consumer Federation of America. We will make them as carefully and consistently as we can.
In some cases, you might not even be aware that you’re investing in a high-cost product because such information is in the fine print or not disclosed at all. For instance, brokers operating under a suitability standard might let the commission attached to a product influence their recommendations.
For the past year, the industry has lobbied Congress to delay or kill the rule, so far without success.
The rules extend a higher standard to stockbrokers, requiring that them to act in the “best interest” of investors when providing guidance for individual retirement accounts. Because as written, financial advisors will no longer be able to receive any compensation in the form of commission, service fees or on-going 12B-1 fees for advising you on your retirement accounts. Regulators said the contract could be signed at the same time as other account-opening documents, though any advice given before the signing must still be in the customer’s best interest.
Not all financial firms are against the rule. “Some will find they are well prepared, but for others, even with the changes, it will be a real operational challenge to come into compliance”. President and CEO Dale Brown said that there is “no compelling evidence this rule is necessary”.
The move would put savers into accounts where what brokers and advisers are paid would not depend on the type of investment product they sell.
Some investment firms could also lower their fees. And they have shown that they will stop at nothing to keep these fees. It also encourages financial planners to steer clients toward more conservative options, which is not always the most beneficial in terms of reward, especially for young investors.
The department is responsible for ensuring that retirement savings vehicles are secure and operated according to the federal pension laws and regulations. These are the people who are now most likely to get “a sales pitch dressed up as advice” from brokers, Roper says. If the company doesn’t want to put you first, why work with it?
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“I could have had my fourth graders do it and they would’ve done a better job”, Mrs. Kazda said. It will go into effect in April 2017 and will not affect those saving through 401(k) plans because those are already subject to similar rules.
