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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.


I am a


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.

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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

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