Under the stricter standard, brokers must place their clients’ interests ahead of personal gain when they make recommendations for retirement accounts; they must offer financial advice in their clients’ “best interest”, as opposed to what it was before, which was the requirement that they only offer “suitable” advice.
Advertisement
The federal government’s move should encourage a movement of retirement funds into lower-cost investments – potentially saving billions of dollars for many USA investors, including those with individual retirement and 401(k) accounts. The new requirement should significantly improve disclosure, reduce conflicts of interest, and force brokers and advisers to explain to you why they are recommending particular products when better and cheaper options are available.
The broader definition of fiduciary will take effect in April 2017, according to the DOL.
Financial services executives have said the new rule will create unnecessary paperwork and could cause some firms to stop handling savers with smaller accounts.
The Labor Department estimates that its so-called “fiduciary rule” could save American investors more than $17 billion as financial advisers can no longer steer customers toward products with higher fees and lower returns. But firms musteventually tell new clients in writing that they are acting intheir best interest, and any advice given before a contract issigned must be covered by the contract and meet the bestinterest standard. The administration has argued that rollovers based on conflicted advice could rob a typical investor of as much as $12,000 in retirement savings.
The ruling is complex, but the following are some answers to some of the most basic questions on retirement savings, fees and the kind of advice you should expect in the future. Your taxable investment accounts are not affected by the new rule. The rules apply to advisers on retirement accounts and not other types of investments. Under the existing standard, advisers can recommend investment options that pay them a greater commission as long as they disclose the conflict of interest. “The investor has to do a bit of homework to figure out who you are dealing with”, said Kate McBride, the chair of the Committee for the Fiduciary Standard, a volunteer campaign that has advocated for the rule.
The proposed version elicited a litany of concerns from stakeholders, and doomsday predictions that commission-based sales on retirement accounts would effectively be banned and savers of modest means would be priced out of the advisory market.
Advertisement
– Financial brokers must now act in clients’ “best interest” when giving retirement investment advice. A widow and single mom from Wantagh, New York, she’s also angry that he took money set aside for her then-3-year-old son and put it in variable annuities that she can’t touch until turning 59 ½, at least without paying steep penalties. Oftentimes, the difference between various investment products can seem inconsequential - the average investor may not be too alarmed when their adviser suggests they invest their savings in a fund that charges a one percent management fee.
