A new Department of Labor fiduciary ruling, slated for public release tomorrow, could help save $40 billion over the next ten years, given the adoption of the current rules and proposals that would mandate financial advisors to place the interests of their clients ahead of their own personal gain.
Advertisement
Proponents of the rule say it should cut back on cases of retirement savers being steered into complicated and pricey investments, leaving them with more savings in their pockets.
“People are being cajoled into moving their money out of a relatively low-priced, well-regulated part of the retirement system and into a relatively unregulated, high-cost part”, she said in a telephone interview. The rule goes into effect April 2017. Some firms facing higher costs because of the new rules may decide that it doesn’t make financial sense to work with savers who have small account balances if they see a cutback in the fees they earn for working with those clients. By implementing it, the Obama administration aims to reduce the $17 billion that the White House Council of Economic Advisors estimates Americans lose annually to conflicted financial advice on their retirement accounts. People should be able to trust the person they are paying for retirement advice. “Regular consumers have no idea that this is even happening”, said Jamie Hopkins, retirement income professor at the American College of Financial Services.
The regulations don’t ban commissions outright, but they require financial professionals who accept them to disclose the terms of their compensation to the client. Firms including LPL Financial Holdings have been cutting fees and reducing the amounts clients can hold in their brokerage accounts, all in preparation for the rule. “If your business model rests on bilking people out of hard-earned money in retirement plan accounts, you don’t belong in this industry and you will not like this final rule”. “These harms include the loss of billions of dollars a year for retirement investors in the form of eroded plan and IRA investment results”. “We expect that the firms will adapt and that honest professionals will thrive with this new rule“, Peiffer said.
Labor Secretary Thomas E. Perez said at a press conference yesterday that the “rule ensures that putting clients first is no longer just a marketing slogan, it’s the law”.
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.
Lisa Bleier, the managing director of the Securities Industry and Financial Markets Association, which representing hundreds of securities, firms and bank and asset managers, cautions against the proposed rule and its ability to help clients save for retirement. Another option is one of the new “robo-advisers” that typically charge lower fees and have lower asset minimums.
Advertisement
The rule will likely have a number of consequences including limiting the ability of IRA companies to talk to potential investors or to recommend specific investment advice.
