The new fiduciary rule issued yesterday by the Dept. of Labor, which is created to address conflicts of interest among financial advisers, will require HR departments to review their arrangements with vendors that provide retirement-plan services, say experts.
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But some industry pros have said they were anxious the change could increase paperwork and limit options for savers with small or modest account balances.
The rule won’t affect people saving through 401(k) plans, which are already subject to fiduciary rules. But, in fact, most investment professionals who deal with these types of accounts are now only required to recommend investments that are “suitable” for their clients’ financial needs. However, industry observers believe it could lead to more sweeping changes in the years ahead across the financial services industry.
“The Democratic presidential front-runner said the new rules on retirement investment advisers can help boost the economy for the middle class and said she would protect President Obama’s efforts to curb Wall Street’s power if she is elected president”.
The new rules require that when an investment adviser’s interests pull in one direction and the client’s in another, the client’s interests will be paramount. Last year, the Council of Economic Advisers released a report on the economic consequences of the investment advice provided by advisers with conflicts of interests.
They put brokers under the stricter requirements when they handle clients’ retirement accounts.
For decades, registered investment advisors have been obligated by law to act in their clients’ best interest.
That makes good investment advice especially critical today, according to Alicia Munnell, director of the Center for Retirement Research at Boston College, who co-authored a paper that was presented to the Labor Department in August. It’s “exceedingly prescriptive”, Ken Bentsen, SIFMA’s president and chief executive officer, said during the press briefing.Perez said the rule’s “forward-looking point-of-sale disclosures were pretty heavily criticized, so we eliminated entirely the one-, five- and 10-year forward-looking disclosures, as well as the annual disclosure requirement”. Regulation is a top priority for SIFMA, a lobbying group that advocates for large broker-dealers, as it continues to take a hard look at the final version released Wednesday to assess the impact it will have on financial advisers and investors who rely on them. That standard, according to critics, freed the way for brokers to recommend investments that earned them higher commissions, even if a cheaper alternative would have been better for the investor.
Although the DOL’s rule applies only to retirement accounts, it may have broader repercussions as brokerages and other advisory firms adjust their pay models.
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Q: Why do I need to sign a contract with my adviser? Those investors may want to consider working with a financial adviser that charges a flat hourly, monthly, or annual fee instead of an asset-based fee.
