In a ruling handed down March 15, a federal appeals court all but killed the fiduciary rule — a Labor Department regulation aimed at protecting retirement savings — before it was even fully implemented.
A lot of people are after your money, especially if you are one of the millions of Americans who will retire and roll over 401(k) money into an IRA. A rollover will keep your money growing tax deferred, but you might find yourself at the mercy of a financial adviser or broker who recommends expensive and complicated products you don’t really need.
Recognizing the challenge this poses to retirement security, the Labor Department two years ago wrote the fiduciary rule requiring all financial advisers, brokers and insurance salespeople to do these two things in relation to retirement accounts:
--Fully disclose all fees, commissions, hidden costs and incentive programs in any recommended investment.
--Put clients’ interest ahead of their own in recommending products.
There’s a lot of money at stake, and a lot of fees and commissions involved in rollover accounts. More than $6 trillion is invested in 401(k) plans. The average account size is just under $100,000, but for those ages 60 to 70, the average balance is well over $160,000.
The fiduciary rule would have cut deeply into Wall Street’s profits. That’s why so many big firms banded together to fight the rule. We should all be against costly and unnecessary regulation, but in this case, the industry is the big winner.
Actually, the financial services industry already had figured a way around the rule in case it went into effect. They had decided to charge an “investment management fee” instead of sales commissions to offset the cost of advice. But what careful retiree needs to pay 1 percent a year on total assets, just to be told to keep a large portion of his or her assets in safe things like money market funds and CDs?
What happens now that the fiduciary rule is officially dead? The securities and insurance industries will revert to the old standard of “suitability.” If a salesperson recommends an investment that is suitable, he or she will not have to disclose that there is a lower cost mutual fund or annuity available — one that doesn’t pay the salesperson a commission. Under the suitability standard, it’s much harder to sue for bad and costly advice.
It’s said the Securities and Exchange Commission is working on its own version of the fiduciary rule. Yet despite its responsibility to protect investors, it hasn’t gotten around to it yet. And after the recent appeals court ruling, crafting an equally strong standard will be difficult, if not impossible.
Now it’s up to you to carefully choose an adviser who is worried about your retirement, not his or hers. There are steps you can take to protect yourself.
Go to www.CampaignforInvestors.org. This website was created by the Institute for a Fiduciary Standard, the group behind the push for the original Labor Department rule. There you can learn what to ask a prospective financial adviser. And you can directly search the disciplinary histories of all securities and insurance salespeople.
Ask your financial adviser or broker or salesperson if she promises to act as a fiduciary. Just because there isn’t a law doesn’t mean that an adviser can’t sign a personal pledge to fully reveal all costs and commissions — and to put your interests first.
Find a fee-only financial adviser at NAPFA.org, the website of the financial planners who charge fees, not commissions. Research their backgrounds and choose a fee-only certified financial planner. They are true fiduciaries.
This is not about getting something for nothing. It’s always worth paying for good financial advice — not only about products, but about organizing your life for financial success, and getting consistent reassurance along the way.
But you deserve to know all the costs involved. And now only a true fiduciary will tell you. That’s the Savage Truth.
Terry Savage is a registered investment adviser and the author of four best-selling books. She responds to questions on her blog at TerrySavage.com.