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.
Kiplinger's Guideto the Financial Pro Marketplace
- Find the Right Financial Advice at the Right Price
- The Best Financial-Planning Options for Single Savers
- How to Vet a Financial Adviser
- The Best Financial-Planning Options for Families Saving for Retirement and College
- What You Must Know About the Fiduciary Rule
- The Best Financial-Planning Options for Near-Retirees
- My Search for a Financial Adviser
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.
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%.
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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.
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