On Wednesday, the Labor Department finalized a long-running regulatory project that will require investment advisers for retirement plans to adhere to a “fiduciary duty”. “I am fearful that those concerns, which were widely and bipartisanly held, will prove to be true once the rule becomes effective”. Once that is in place, any advice you get on retirement savings will have to meet a standard that is about your needs, and not what makes the adviser the most money.
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“The DOL has been very prudent about how they’ve gone about this in trying to make their rule litigation-proof, but opponents will sue in court”, said Scott Puritz, managing director of retirement services firm Rebalance IRA. In 1974, when the Employee Retirement Income Security Act was first passed, most people’s retirement savings took the form of employer-sponsored traditional pension funds, which required little financial sophistication or input from employees, and were handled by the kind of professional investment managers who are legally required to act in their clients’ best interests. “In a world where people are more on their own in making financial decisions, financial advisors are not required to give advice that is not in their clients’ best interest”. Retirement experts say that it’s hard for consumers to know when they’re being cheated, especially since a lot of unscrupulous behavior in the industry isn’t technically illegal. And they have shown that they will stop at nothing to keep these fees.
Susan Bernardo says her broker put her in energy and real estate partnerships without telling her about the risks or the fat 5% commission that brokers typically earn on such deals.
“People who seek guidance from a retirement adviser deserve the highest standards of care, not an intermediate standard, not a standard that is anything less than what is in their best interests”, Booker said. Unlike in the proposed version, firms can now simply send a notice that tells these clients that the firm has taken on new obligations for them as a result of the new fiduciary standard.
Cetera Financial Group has rolled out a new retirement portal for the registered representatives on its network, while LPL is lowering minimums on fee-based accounts, as reported previously.
The financial industry has fiercely opposed such a rule for years.
“This is a huge win for the middle class”, Labor Secretary Thomas Perez said in a conference call with reporters. But it will have to disclose that these are its particular offerings, in a universe that may include other options – and that they fit with what they consider to be the client’s best interest. But Perez also made clear the White House has a message if there is a political fight: “Are you putting consumers first”, or do you think the only way to provide financial advice is at consumers ‘expense? Smaller firms may not have the technology to support the additional documentation necessitated by the rule, according to Seeking Alpha, and fee-based accounts may also not be profitable for smaller clients that some small firms now work with.
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At the outset, the final rule looks to be less costly for firms than the original proposal-with the DOL “minimizing” the compliance burden and eliminating certain requirements. “In effect, they’re saying, ‘If we can’t scam them a little, we’ll ignore them altogether.’ This deceptive mentality is exactly why a new rule is needed”, Naylor said in a statement.
