WHAT INVESTORS NEED TO KNOW
You have probably read about the U.S. Department of Labor’s (DOL) new fiduciary rule that will impact financial advisors and their clients. Simply stated, the DOL’s new “fiduciary duty” standard requires financial professionals who receive compensation for transactions to act in their client’s “best interest.”
That means advisors must, for the first time, provide full transparency around the fees and commissions they charge for retirement plan advice and products. And illustrating the importance of fees and how small differences can add up, the DOL even provided the math:
“A percentage point lower return could reduce savings by more than a quarter over 35 years. In other words, instead of a $10,000 retirement investment growing to more than $38,000 over that period; after adjusting for inflation, it would be just over $27,500.”
Who Will Be Affected?
The DOL’s rule and related exemptions will require all retirement advisors, whether fee- or commission-based to adapt and practice a fiduciary standard that puts their clients’ best interests first and foremost. And retirement advisors have until 2018 to acclimate to this new fiduciary rule.
According to the National Law Review, the final rules will likely impact broker-dealers the most, Registered Investment Advisors the least, and with insurance companies somewhere in the middle. “Record-keepers who have insurance companies or mutual fund manager affiliates will be impacted more than independent record-keepers. And, while not directly affected by the new rules, mutual fund management firms need to understand their impact, for example, the needs of broker-dealers in this new environment. At this point, though, it is impossible to know all of the repercussions. Stay tuned.”
A skeptical investor might ask:
“If you weren’t always acting in my best interest, whose best interest were you acting in?”
Well, that’s a great question and the first one you should ask your financial advisor. I might also suggest you ask the following questions:
As my financial advisor, will you do your best to evaluate my long-term goals and recommend investment ideas to help me achieve them?
Do you a promise to act in my best interest on all matters related to advice and investment recommendations for my retirement portfolio?
Do you or your firm have any potential conflicts of interest with decisions you might make on my behalf?
These five questions will undoubtedly lead to more questions and the more you are informed, the better off you’ll be. And while your advisor might ask you to sign new paperwork attesting to your understanding of this new fiduciary rule, remember the most important question of all: If you weren’t always acting in my best interest, whose best interest were you acting in?
Article written by John Drachman.
RSW Publishing has an agreement to republish this author’s content.
Copyright © 2016 RSW Publishing. All rights reserved.
Distributed by Financial Media Exchange.
Content Disclosure
Material in this publication is original or from published sources and is believed to be accurate. However, we do not guarantee the accuracy or timeliness of such information and assume no liability for any resulting damages. All expressions of opinion reflect the author’s judgment at the date of publication and are subject to change without notice in reaction to shifting market conditions. This material is provided for informational purposes, and it is not to be construed as general financial product advice nor an offer, solicitation, recommendation or endorsement of any particular security, products, or services. Readers are cautioned to consult their own tax and investment professionals with regard to their specific situations.