Why Retirement Savers NEED To Understand the 'Fiduciary' Rule
Jo-Ann Holst Advisers
What does the rule say?
If you have a 401k or IRA, this concerns you. In April of 2017, a rule proposed by the U.S. Department of labor (DOL) goes into effect and changes the way financial planners are allowed to give advice to their clients. While it may not be in the news much, you need to understand how it could affect you, and (perhaps more importantly) why it needed to exist in the first place.
Here's how the DOL defines the rule:
"The Department's conflict of interest final rule ... will protect investors by requiring all who provide retirement investment advice to plans, plan fiduciaries and IRAs to abide by a "fiduciary" standard—putting their clients' best interest before their own profits." You can read the entire DOL summary here.
The key word there is "fiduciary." Like many investors, you might be surprised to learn that all advisers aren't lawfully obligated to put your interests ahead of their own.
Why is the rule necessary?
The DOL investigated non-fiduciary advisers and the advice they were giving their clients and found some disturbing conclusions:
“A system where firms can benefit from backdoor payments and hidden fees often buried in fine print if they talk responsible Americans into buying bad retirement investments—with high costs and low returns—instead of recommending quality investments isn’t fair.” You can read the complete DOL fact sheet about their findings,
Non-fiduciary advisers were recommending investments that earned them higher commissions when there were cheaper, better options available to their clients. They had no obligation to do the best thing for the clients or even to disclose their conflict of interest. Their recommendations only had to be 'suitable' for investors meaning, "it might not be the best but it's good enough." Because of these findings the Obama Administration instructed the DOL to introduce the Fiduciary Rule.
"While many advisers do act in their customers' best interest, not everyone is legally obligated to do so and some do not. Many investment professionals, consultants, brokers, insurance agents and other advisers operate within compensation structures that are misaligned with their customers' interests and often create strong incentives to steer customers into particular investment products. These conflicts of interest do not always have to be disclosed and advisers have limited liability under federal pension law for any harms resulting from the advice they provide to plan sponsors and retirement investors. These harms include the loss of billions of dollars a year for retirement investors in the form of eroded plan and IRA investment results..." DOL Rule Summary.
Will you and your accounts be affected?
It depends on who you're currently working with to manage your money. If you're already working with a fiduciary, you might experience little or no change. If you're not working with a fiduciary, you could see some big changes such as:
Your adviser could leave the industry
You might be referred to a call center, instead of a dedicated adviser, for questions on your existing retirement accounts
Your adviser might need you open new accounts that comply with the new rule
Your fees could change
Why is the rule controversial?
You can probably imagine who would be against the rule and why. There's lots of money at stake here folks. Some firms could lose large sums if forced to put their clients' interest ahead of their own.
At Jo-Ann Holst Advisers, we're happy about the protection the new law provides for American retirement savers because we've been fiduciaries all along. If your adviser is unhappy about the new rule, like the firm in this article by the New York Times, you may want to consider getting a second opinion on your portfolio.
Good! So you're protected right?... Maybe not...
The rule doesn't go into effect until April of next year. Which means, a new presidency under Donald Trump could see this rule reversed. In fact, many experts agree a reversal is highly likely. Read this article from the Wall Street Journal:
" Rep. Ann Wagner (R., Mo.) says congressional Republicans will renew their fight after Donald Trump’s inauguration to dismantle or delay the so-called fiduciary rule, which aims to eliminate incentives that cause brokers to give conflicted advice to retirement savers and transform the way financial products are sold."
To date, no one knows for sure what will happen. The rule could go into effect as planned, it could be edited, or it could be thrown out all together. The decision lies with the Trump Administration. Even if he intends to reverse the rule, he might not get to it before April.
Make sure you're adviser is a 'fiduciary' before you commit to working with him or her.
"These harms include the loss of billions of dollars a year for retirement investors in the form of eroded plan and IRA investment results."
"Republicans will renew their fight after Donald Trump's inauguration to dismantle or delay the so-called fiduciary rule."
"Firms can benefit from backdoor payments and hidden fees often buried in fine print."
What can you do to protect yourself regardless of what happens with the rule?
The possibility of the rule being thrown out by a Trump Administration makes it even more important for you to work with a fiduciary. Investopedia defines fiduciary as:
" ...One the most important professional obligations. It basically provides a much-needed protection for individuals or businesses that enter into various types of legal and financial contracts with other entities. Without it, there is nothing preventing one party from unfairly benefiting from a business relationship at the expense of the other party."
How do you know if your current adviser is a fiduciary or not? If their title is a Certified Financial Planner (CFP) or Investment Adviser Representative, they are a fiduciary. Other types of advisers can be fiduciaries as well, but the best way to find out is to ask them directly. This CNBC article has more tools to determine if your adviser is a fiduciary or not. Make sure you're trusting a fiduciary with your financial future. Afterall, you're the one who will be retiring with this money. You only get one shot to save and invest properly for retirement, so do it right!
Not sure about your current adviser?
Consider getting a second opinion from a Certified Financial Planner.
It's unfortunate that a law requiring advisers to act in the best interest of their clients even needs to exist. As consumers, we assume that the people we entrust with our life savings would naturally be ethical and transparent. Jo-Ann Holst Advisers offers independent fiduciary responsibility through an Investment Advisory Representative Licensure, and through the Certified Financial Planner designation. So we're fiduciaries, times two.
We don't get paid more to select one investment over another. We believe in telling our clients at the first meeting how we earn our money and who is paying us. As fee-only advisers, we don't have to drop commissions like some other firms, because we never charged commissions for investment products. We get paid more if, and only if, your account value increases, so we're on the same side of the table as our clients. Please note, we do receive commissions for insurance products (non-investment products). Law or no law, we've always put our clients first.
Get a no-cost portfolio review!
This is the best free sample you'll ever get! Come see us for a complimentary consultation. We'll review your current investments and provide an unbiased analysis, as well as a side-by-side comparison of alternative investments. If you're already in great shape, we'll tell you to keep up the good work! Jo-Ann Holst Advisers is a Lakewood, Colorado based, Certified Financial Planning agency. We're fiduciaries (obviously), we're independent and we're honest. Schedule a consultation today and you'll thank yourself for years, and years to come. Fill out the form below to get started.
Request a Complimentary Consultation
Schedule a no-cost consultation and get a high-tech portfolio analysis with these tools.
Your Risk Tolerance Analysis
Find out if your current investments fit your risk tolerance
Social Security Maximization Check
Be certain your claiming your highest SS benefit possible
Reasons to schedule a complimentary consultation right now:
Get a second opinion and portfolio analysis at no cost
Utilize advanced risk tolerance or Social Security Maximization software at no cost
Find out if your adviser is a fiduciary and if you're currently paying unnecessary fees
Ask a Certified Financial Planner your questions about
The fiduciary rule
Your Social Security benefit
Best ways to reduce taxes, etc.
Convenient location, office located at the 1st Bank of Belmar/Lakewood
No obligation. If you're adviser is doing right by you, we'll say so.
Meet your new Lakewood Financial Planner
About Jo-Ann Holst, CFP®
Jo-Ann is an independent, Certified Financial Planner™ and Best Selling Author with a vast background in financial planning. She has nineteen years of experience in the securities, insurance, and commodities industries. Jo-Ann personally developed all of her financial education classes and has been teaching classes for ten years in Colorado. She specializes in comprehensive financial planning that covers the many needs that arise in retirement. She brings the competing worlds of money together by offering both low-risk insurance products and market investments. In her spare time, Jo-Ann is an avid gardener and fused glass artist.
11/30/2016 Meet With Jo-Ann' Holst
Become a client and get access to all these tools:
Retirement Analysis Software:
Today, we want simplification. We want an easily understood analysis of where we are now, and what we need to do to succeed. That's why JHA utilizes cutting edge retirement planning software that brings together complicated information to present simple results. See a year-by-year snap-shot of your financial future. Our software compiles all of your financial data into one periodic, short and easy to understand analysis. Advanced algorithms allow you to forecast potential future scenarios, see how taxes and inflation could impact your money, and when your money could run out.
Social Security Maximization Software:
JHA also uses a Social Security maximization software to help you and/or your spouse visualize different claiming scenarios to ensure your family receives the biggest possible benefit. There are many ways to claim Social Security benefits and one should consider the three possible benefits; our own, spousal and survivor. This programs helps to maximize your bottom line when making decisions on when to take benefits, while integrating Social Security with withdrawal of other retirement funds.
Account Aggregation Software:
One log-in gets you access to unlimited online accounts. Stay organized and keep better track of your investment performance with all of your household’s bank, investment, retirement, and college savings accounts organized on a single screen. This webbased, live reporting gives you access to account balances, performance, and allocation. Reach your goals faster by seeing how all of your accounts work together. Rest assured that your personal information is kept safe with secure data sharing & collaboration
Risk Analysis Software:
Do you ever wonder if you're in the right investments for your risk tolerance and life stage? We use a patented Risk Number® technology, that can help you objectively calculate your true risk tolerance by utilizing a scientific framework that won the Nobel Prize for Economics. In fact, you don't have to wait to become our client to find your risk number. Click below to take the quiz.