Given the great strides in financial services technology, you are probably better off with robo-advisers like Betterment, Wealthfront or Rebalance-IRA (all have embraced the fiduciary standard) than a conflicted salesperson who is pushing a more expensive retirement product than you need.
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A new Department of Labor rule aims to keep bad investments out of your retirement accounts. A new rule announced Wednesday by the Department of Labor is going to change the way people get advice on how to invest that money, by holding investment professionals to what is called a “fiduciary standard”. Under the new rule, advisers and brokers can still receive commissions, but their firms are required to take proactive steps to reduce (not merely disclose) the resulting conflicts of interest. Financial firms also argue that the stricter rules will likely shrink Americans’ investment options and could cause brokers to abandon retirement savers with smaller accounts.
The financial expert has criticized the rule because it will – in his opinion – deter companies from serving middle class investors, creating a “guidance gap” that could cost an estimated $80 billion in lost savings.
“With the finalization of this rule, we are putting in place a fundamental protection into the American retirement landscape,”Perez told reporters on Tuesday afternoon, according to ThinkAdvisor’s Melanie Waddell”.
For investments other than retirement accounts, it’s important to know that every financial adviser isn’t required to always act in your best interest. However, to provide adequate time to implement the new requirements, the conditions imposed by BICE and the Principal Transactions Exemption will be phased in from April 2017 to January 1, 2018, with full compliance required by January 1, 2018.
In the past, advisers only had to offer advice that was “suitable”.
A Labor Department summary of the final version, however, reflects key changes in response to industry concerns, said Marcia Wagner, a Boston-based lawyer who advises retirement plan providers.
Many Americans who consult with a financial adviser for help picking stocks, bonds, and mutual funds assume that he or she is already required to give objective advice that’s uncompromised by conflicts of interest-much like other professionals such as lawyers or bank trust officers.
The financial industry has fiercely opposed such a rule for years.
Forty years ago, defined benefit plans based on factors such as an employee’s earnings history and duration of employment accounted for the lion’s share of all retirement assets, according to the White House report and data from the Investment Company Institute. If you work with a broker or adviser who charges commissions, you might see changes in the mix of investments your adviser or broker recommends in the future.
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The rule clarifies treatment of small businesses thatsponsor 401(k) plans, allowing brokers to sell products andservices to them. The biggest potential impact will be regarding the continued ability of an adviser or record keeper to provide education without acting as a fiduciary, as well as how they are compensated. Berlau cited the effect of a similar regulation in Britain where the unintended outcome prompted financial advisers to focus primarily on wealthy investors.
