The biggest decisions Americans are faced with fall into one of three categories: medical, legal or financial.
Fortunately, the financial world will now give retirement savers and employers the protection they have always had with their attorney or doctor.
The new rules compel providers to act in the best interest for owners of retirement accounts and 401ks by making the providers act as your fiduciary.
A fiduciary duty is the highest standard of care known to the law. An overriding duty of a fiduciary is the obligation of undivided loyalty to the customer.
It is a big deal.
If you owned a department store and employed purchasing agents, you would really be best served by purchasing agents who did not take money from your suppliers.
Of course, in the retail industry it would be preposterous for your buyer to get money from anyone but you, but in financial services the taking of money from suppliers is widespread today.
Financial advisors and their employers act as your purchasing agent in many transactions, and it is essential they not put anyone’s interest ahead of yours.
Your retirement and your employee’s retirement face some changes this April as the new fiduciary standard rules go into effect for all individual retirement accounts or and the company 401k plan.
New rules will affect rolling over your 401k at work to an IRA account at a registered representatives (or brokers) firm, bank, insurance agents company or a registered investment advisors custodian.
Those rules will put additional scrutiny on rollovers because in some cases it is in the best interest for a retirement saver to stay at their company’s retirement plan and not rollover to an outside IRA.
In the past, rollovers from company plans sometimes benefited the broker, bank, agent or investment advisor associate and the companies they represent more than the retirement saver.
New rules will also affect your relationship with commission-based brokers and agents. You can expect a very large pile of paperwork to arrive from any advisor that has been previously receiving commissions on your retirement account in the past.
In it, you will find a contract entitled the best interests contract exemption. This new contract will allow your insurance agent, broker or bank registered representative to continue charging commissions while obligating that advisor and that advisor’s firm to act in your best interest.
Beware though, this new protection will only apply to retirement accounts.
Advice provided about other types of taxable investment accounts will not be held to the same standard, but follow the much weaker protection of the “suitability standard,” which basically states a type of investment need be only considered “suitable” for you but could dramatically increase your costs of investing — thereby decreasing your investment account value — and would still be permissible under the suitability standard.
You will not get BIC paperwork for an account you previously had under the care of a registered investment advisor as they have been compelled to act as fiduciary for you since the 1940s under the Investment Advisor Act and have never used the suitability standard.
The overarching principles here are quite simple: all Americans need to save for retirement and keep an eye on commissions, expenses and fees.
The new rules are not perfect, but with a concerted effort the retirement saver can keep an eye on the costs in their retirement accounts because of the new transparency mandated.
Most providers of advice will walk you through the entire costs of working with them and their company. The best advisors welcome the new rules and additional scrutiny and transparency. Remember it always pays to shop around.
Update: On Friday, Feb. 3, President Donald Trump wrote a memorandum, not an executive order, asking the Department of Labor to review the new Fiduciary Standard rule compelling advisors to act in the best interest of retirement savers. As of now the rule still will go into effect on April 10 but the story is still unfolding and perhaps the rule will be revised, delayed or rescinded.
Many of the largest financial firms in the country have communicated to clients and the public that they support the concept of their advisors acting in the best interests of retirement savers, making it very difficult to walk back such public announcements. Additionally, as the rule has been eight years in the making, significant portions of the industry have already spent millions preparing for its implementation and are all set for an April 10 rollout. Some of the largest companies have stated that they are going to keep their plans for complying with the new rule.