Fiduciary Rule Basics for Investors
If you’re getting notices from your financial professional about changes in how they operate, it may be because of the new Department of Labor fiduciary rule. Here’s what retirement savers should know.
There has been quite a bit of news regarding the question of what an investment fiduciary is, based in part on protracted wrangling over a Department of Labor (DOL) ruling. Now that the new rules have taken effect (as of June 9, 2017) it’s time to review their finer points.
What is an investment fiduciary?
An investment fiduciary is a financial professional who is legally bound to act in the best interests of their clients. In the past, there was no legal requirement that financial professionals follow that standard, and not all of them did. Some, not me, chose to act in their own best interests or the best interests of the portfolio, leaving out the client’s needs or interests.
The old standard was akin to selling someone clothes that fit while the new standard is that the clothes have to fit while also making the customer look good. It’s a subtle yet significant change.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
How will the new fiduciary rule impact my relationships with clients?
It won’t impact my clients because it’s been my standard practice, since I started in the financial planning industry, to always provide services in a fiduciary capacity. I work on behalf of my clients and in their best interests. We work together to develop a financial strategy that we then implement to help them reach their goals, whether that’s to retire at a certain age, buy a home, get married, have kids or take a dream vacation.
What should every person who works with a financial adviser know about the fiduciary rule?
- The fiduciary rule applies to retirement accounts only at this time (including 401(k)s and IRAs funded with pre-tax money), but many financial firms are making the changes across the board under the assumption that all investments will be subject to the rule in the future.
- To provide a recommendation to a retirement investor, the recommendation needs to be in the best interest of the investor. But requirements including documenting an interest analysis are not required until Jan. 1, 2018.
- Financial professionals can charge no more than reasonable compensation. The question of what exactly that is remains unclear; most companies will set their own internal practices.
- Financial professionals should provide no leading statements about investment transactions, compensation, conflicts of interest, and tell the truth. At this time, there is no way to measure or police this regulation, so time will tell how effective it can really be.
What does this mean for retirement investment accounts?
As consumers, it means having a greater awareness and understanding of what your financial adviser is doing on your behalf when it comes to retirement and other investments. If you don’t have a clear understanding, ask questions, and if you don’t like the answers or your adviser doesn’t know the answer, it might be time to find a new financial adviser.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
Shanna Tingom is a registered representative, securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Heritage Financial Strategies are not affiliated.
-
Five Reasons to Take Social Security Early (and Four Reasons to Wait)
Are there good reasons to take Social Security early? While many experts say it's best to wait until full retirement age to claim benefits, here are some reasons to start early.
By Kathryn Pomroy Published
-
A Letter of Wishes: No Legal Power But Powerful Nonetheless
A letter of wishes lets you explain, in plain language, your intent behind your estate documents, potentially heading off any misunderstandings or disputes.
By Steve Lockshin Published
-
A Letter of Wishes: No Legal Power But Powerful Nonetheless
A letter of wishes lets you explain, in plain language, your intent behind your estate documents, potentially heading off any misunderstandings or disputes.
By Steve Lockshin Published
-
If Cars With Touchscreens Are Unsafe at Any Speed, Why Do We Have Them?
Studies show how distracting car touchscreens can be, yet many automakers still use them, perhaps because they’re cheaper to upgrade than physical components.
By H. Dennis Beaver, Esq. Published
-
How to Assess the Impact of Your Charitable Giving
Here are five simple ways to 'do this, not that' when trying to find out from a nonprofit what kind of impact your donations are having.
By Catherine Crystal Foster Published
-
How a Two-Year Installment Sale Strategy Can Save on Taxes
When selling property or other substantially appreciated asset, you could spread the taxes over two years to save big bucks. Following the rules is critical, though.
By Derek A. Miser, Investment Adviser Published
-
Five Ways to Make Retirement a Little Less Scary
To avoid lying awake at night once you’re retired, consider having these strategies in place before you take the plunge.
By Evan T. Beach, CFP®, AWMA® Published
-
With Irrevocable Trusts, It’s All About Who Has Control
An irrevocable trust must be carefully funded, structured and managed to achieve both asset protection and tax planning.
By Rustin Diehl, JD, LLM Published
-
If You’re Preparing to Move, Should You Buy or Rent?
Both prospects are expensive these days, but there are several questions you can ask yourself to help you decide what’s right for you.
By Justin Stivers, Esq. Published
-
How Annuities Can Help You Retire Early and Delay Social Security
Waiting until 70 to claim Social Security benefits can pay off, so how do you bridge the gap between giving up your paycheck and filing for benefits?
By Ken Nuss Published