Stan’s slant…
New financial advice rules set
Washington Post
To prevent bad or conflicting advice, brokers and advisers now face stricter standards
The Labor Department announced sweeping rules Wednesday that could transform the financial advice given to people saving for retirement by requiring brokers and advisers to put their clients’ interests first
The long-awaited “fiduciary rule” would create a new standard for brokers and advisers that are stricter than current regulations, which only require that brokers recommend products that are “suitable,” even if it may not be the investor’s best option.
At a time when mom-and-pop savers are increasingly being put in charge of their own retirement security, the rule is meant to add a new layer of protection to guard workers from poor or conflicted investment advice. The rule is supposed to improve disclosures and to reduce conflicts of interest, such as cases when a firm is paid by a mutual fund company or other third party for recommending a particular investment.
“This is a huge win for the middle class,” said Thomas Perez, secretary of the Labor Department. “In far too many places and on far too many issues, the rules no longer work for working people.”
Proponents of the rule say it should cut back on cases of retirement savers being steered into complicated and pricey investments, leaving them with more savings in their pockets. While the new rule won’t ban commissions, brokers may have to explain why they are recommending a particular product when a less expensive option is available, and they could face scrutiny if they recommend complicated products. Conflicted investment advice costs savers $17 billion a year, according to an estimate from the White House Council of Economic Advisers.
“Hard workers need every dollar to work for them,” said Sen. Elizabeth Warren during a press event Wednesday announcing the rule.
It’s too soon to know exactly how the rule will play out, but the change could lead savers to invest more of their money in low-cost index-based funds, analysts say. Some investment firms could also lower their fees.
Another potential impact of the new rules for retirement savers is that they might end up switching accounts or investment firms. Some investors may have conversations with their brokers and advisers over the next several months about whether they should be moved into a different kind of account or work with a different firm altogether.Some firms may decide to move investors from commission-based accounts to fee-based accounts where funds may be managed by a financial adviser and an investor’s cost may be structured as a percentage of assets invested, instead of a fee per transaction, according to the report released in October by the fund research firm Morningstar. The move would put savers into accounts where what brokers and advisers are paid would not depend on the type of investment product they sell.
Those fee-based accounts are already subject to fiduciary standards but may raise costs for investors who rarely make trades and are more likely to hold on to investments for the long term.
The Labor Department also says educational information offered to retirement savers about types of investments would still be allowed under the new rules. But investment firms consulting savers on whether they should keep their money in a 401(k) or roll them over into an IRAwould be required to meet the new standard on any advice they offer. Financial firms would have until January 2018 to get into compliance.
Quote of the week…
“The pro is the person who has all the hassles, obstacles, and disappointing frustrations that everyone else has. yet continues to persist, does the job, and makes it look easy.”
–David Cooper, Sales Trainer
