I’m a fiduciary, and proud of it. I like that my clients know I always put their best interests first when I’m working with their hard-earned money, and I take that responsibility seriously.
Still, I can’t say I’m happy that the Department of Labor’s long-delayed fiduciary rule finally went into effect on June 9, a little over two months after President Trump delayed its implementation for more study.
The rule emphasizes eliminating conflicts of interest among financial professionals. Until now, some financial professionals, such as brokers, were required to act under only a suitability standard. The products they recommended needed only to be “suitable” to the client’s goals and objectives given their current situation, meaning that it was OK to recommend products that were suitable but that came with higher fees or expenses – from which the adviser could earn some extra money. Now, under the fiduciary rule, the advice they give for your retirement accounts is required to be in your best interest, not their own.
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.
One thing to keep in mind: The rule applies only to your retirement accounts: those funded with pre-tax dollars, such as your IRA and 401(k), but not individual brokerage accounts.
Problems from the Start
If you’re not sure what standard your financial professional is working under, ask. But there have been problems from the start with the way the rule came to be, the way companies are executing it and what it means to consumers.
That the regulation was delivered by a federal agency and pushed by the past administration, circumventing Congress’ opposition, is troubling.
It isn’t as though the problems the rule addresses haven’t been on Congress’ radar. Alternatives had already been proposed. And it’s possible there would be fewer objections if the changes had gone through the proper channels.
The financial services industry opposed the DOL rule from the beginning — arguing that it would make retirement planning too expensive for middle- and lower-income individuals seeking professional guidance. And yet, in fits and starts, the rule moved toward reality, and the industry began changing to deal with it. Large and small firms started reinventing themselves and how they do business.
Small Clients Being Squeezed Out
Already, we’ve seen companies raising their minimums; if you don’t have enough in your portfolio to make it worth the work, and you’re not paying those commissions and fees anymore, you may have a difficult time finding a good financial professional. Existing clients could have to look elsewhere for help, and new clients may have to go where their account size is welcomed or become do-it-yourselfers.
The level of advice an individual receives should not be based on the size of their retirement portfolio. And DIYers will be facing a market due for a correction. They could ruin their retirement if they don’t get it right.
And now that the rule has come to pass, I think firms will use it as a marketing angle. They’ll say, “We’ve been waiting for this, and we’re ready.” But they won’t be there for everyone.
Pressure on Financial Professionals
And every adviser won’t be around, either. New costs, compliance obligations and other issues associated with the rule will force some financial professionals out of business. And a lot of older, experienced financial professionals may decide to retire rather than deal with the educational requirements, not to mention the thought of what could happen if a client decides they should have done better and takes the case to court.
So you’ll see options disappearing for lower-income individuals, but also any individual who simply prefers working with the financial professional they’ve always had, in the manner they’ve grown used to.
My Final Take on the Fiduciary Rule
I’ve been a fiduciary for more than 20 years, and I think it’s the best way to conduct business. But there are problems with the DOL rule that I believe need fixing.
As President Trump said in his Feb. 3 memorandum ordering a review of the rule, further analysis is in order.
-
Stock Market Today: Have We Seen the Bottom for Stocks?Solid first-quarter earnings suggest fundamentals remain solid, and recent price action is encouraging too.
-
Is the GOP Secretly Planning to Raise Taxes on the Rich?Tax Reform As high-stakes tax reform talks resume on Capitol Hill, questions are swirling about what Republicans and President Trump will do.
-
Social Security Is Taxable, But There Are WorkaroundsIf you're strategic about your retirement account withdrawals, you can potentially minimize the taxes you'll pay on your Social Security benefits.
-
Serious Medical Diagnosis? Four Financial Steps to TakeA serious medical diagnosis calls for updates of your financial, health care and estate plans as well as open conversations with those who'll fulfill your wishes.
-
To Stay on Track for Retirement, Consider Doing ThisWriting down your retirement and income plan in an investment policy statement can help you resist letting a bear market upend your retirement.
-
How to Make Changing Interest Rates Work for Your RetirementHigher (or lower) rates can be painful in some ways and helpful in others. The key is being prepared to take advantage of the situation.
-
Within Five Years of Retirement? Five Things to Do NowIf you're retiring in the next five years, your to-do list should contain some financial planning and, according to current retirees, a few life goals, too.
-
The Home Stretch: Seven Essential Steps for Pre-RetireesThe decade before retirement is the home stretch in the race to quit work — but there are crucial financial decisions to make before you reach the finish line.
-
Three Options for Retirees With Concentrated Stock PositionsIf a significant chunk of your portfolio is tied up in a single stock, you'll need to make sure it won't disrupt your retirement and legacy goals. Here's how.
-
Four Reasons It May Be Time to Shop for New InsuranceYou may be unhappy with your insurance for any number of reasons, so once you've decided to shop, what is appropriate (or inappropriate) timing?
