Advertisement
Financial Planning

What You Must Know About the Fiduciary Rule

Be sure your financial pro is looking out for your best interest.

The Department of Labor's fiduciary rule sounds straightforward enough: It requires financial professionals who give advice about retirement accounts to put their clients' interests ahead of their own. But critics of the rule say it would make it more difficult for investors who don't have a lot of money to get advice. The Trump administration has delayed enforcement of key provisions of the Obama-era rule until mid 2019, and a U.S. circuit court recently ruled that the Labor Department doesn't have authority to enforce it. The issue is likely to end up in the Supreme Court.

Advertisement - Article continues below

The rule was designed to deter brokers from encouraging investors to roll their 401(k) plans and other employer-based plans into retirement accounts stuffed with high-cost investments. Brokers adhere to a less stringent standard than the fiduciary rule. Investments they recommend must be "suitable," given a client's age and risk tolerance, but they don't have to be the lowest-cost options.

Advertisement
Advertisement - Article continues below

Some states are enforcing their own version of the fiduciary rule, and the Securities and Exchange Commission is considering a fiduciary rule that would apply to all brokerage accounts, not just retirement plans. Meanwhile, the proposals may have already dampened sales of some high-fee products in retirement accounts. Overall sales of annuities within IRAs dropped 13% in 2017, according to the LIMRA Secure Retirement Institute. Sales of variable annuities—which typically have higher fees than other types of annuities—within IRAs fell 16%.

Advertisement - Article continues below

There are still plenty of people peddling pricey products along with their financial advice. They often sweeten the deal by providing a free lunch or dinner, complete with colorful PowerPoint presentations. Mary and Len Bach of Murrysville, Pa., have enjoyed more than 30 free meals as volunteer consumer advocates for AARP, and they often agree to schedule a follow-up meeting with the adviser who gives the presentation.

Len, 76, says the investments they offer are usually legal, but they typically come with high commissions. Worse, the advisers rarely spend time determining whether the products they're selling are appropriate for a potential client's individual circumstances, he says. The Bachs have even seen advisers try to sell annuities with a 12-year holding period to people in their nineties. On the plus side, the food is usually pretty good. "They wouldn't give you a bad meal and try to sell you something," Len says.

You can protect yourself by making sure that any planner you hire is a registered investment adviser or certified financial planner. RIAs, who are licensed to give investment advice, are required to act in their clients' best interests. Likewise, the Certified Financial Planner Board of Standards requires all CFPs who provide financial-planning services to act in their clients' best interests, and that's not limited to retirement accounts.

 

Advertisement
Advertisement

Most Popular

7 Surprisingly Valuable Assets for a Happy Retirement
happy retirement

7 Surprisingly Valuable Assets for a Happy Retirement

If you want a long and fulfilling retirement, you need more than money. Here are the most valuable retirement assets to have (besides money), and how …
August 3, 2020
Turning 60 in 2020? Expect Lower Social Security Benefits
Coronavirus and Your Money

Turning 60 in 2020? Expect Lower Social Security Benefits

When you file for Social Security, the amount you receive may be lower.
July 30, 2020
These 2 Words Could Send Your Retirement Money to the Wrong Beneficiary
estate planning

These 2 Words Could Send Your Retirement Money to the Wrong Beneficiary

"Per stirpes" vs. "per capita." Making the wrong choice could cause an estate planning disaster.
July 30, 2020

Recommended

Check Your Financial Adviser Now (and Every Year) or Regret It Later
wealth management

Check Your Financial Adviser Now (and Every Year) or Regret It Later

Fewer than 10% of investors use free background checks like Investor.gov, BrokerCheck or IAPD to check their financial advisers’ backgrounds. These on…
June 23, 2020
The Answers to More RMD Questions
retirement

The Answers to More RMD Questions

The CARES Act made 2020 required minimum distributions optional. But what are your next moves?
June 12, 2020
A Little Hedging Can Go a Long Way to Protect Your Retirement Savings
retirement

A Little Hedging Can Go a Long Way to Protect Your Retirement Savings

What sounds like a hedge fund but is nothing like one? A hedged equity portfolio. This type of investment portfolio can help you avoid much of the pai…
June 10, 2020
Pass Along Life Lessons With an Ethical Will
retirement

Pass Along Life Lessons With an Ethical Will

Create a legacy letter to communicate values, experiences and life lessons to your family.
June 9, 2020