The transition to a new administration always comes with some degree of uncertainty: What changes will be made and how will they impact you? While President Trump’s executive order on immigration may have garnered the vast majority of media buzz and public attention, a more recent executive order instructing the Department of Labor to review a new regulation known as the “fiduciary rule” is particularly pertinent to people saving for retirement. The review sets the wheels in motion to rescinding the rule meant to protect those planning for their future.
Here’s a closer look at the fiduciary rule, along with what its potential rescission may mean for you.
Is she protecting their interests or advancing her own?
What is the Fiduciary Rule?
U.S. News and World Report defines a fiduciary as someone who “manages another party’s assets and has a legal and ethical obligation to put the other party’s interests first.” In the context of the financial services industry, being a fiduciary means “helping a client make decisions in his best interest, even if it means reduced compensation – or no compensation – for the advisor.”
It’s not a leap to assume that all financial industry professionals would fall into this category. However, this isn’t the case. In fact, while all Registered Investment Advisors do bear a fiduciary responsibility, many other investment professionals do not. Instead, they’re bound to the significantly more open-ended “suitability standard,” which simply requires that investment recommendations merely meet a client’s needs and objectives.
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What’s alarming is this distinction isn’t always obvious to the client. The result? Brokers, insurance professionals, and financial advisors who are under no obligation to put their client’s interests over their own. Unsurprisingly, this can lead to all kinds of conflicts with clients often coming out on the losing end.
Change seemed imminent, however, under the new fiduciary rule, which was formally proposed by the Department of Labor in April 2016, passed soon after, and was scheduled for implementation beginning in April of this year. The intent was to protect retirement savers by making all financial professionals involved in the retirement planning process accountable to the fiduciary standard.
According to Business Insider, “The point of the fiduciary rule is to ensure that retirement planners and other related professionals will be legally obligated to put their clients’ best interest first — not just to find investments that meet the clients’ objectives. The rule would cover professionals who work with defined-contribution retirement plans like 401(k)s and 403(b)s, as well as defined-benefit plans (pensions) and IRAs.”
In short, the fiduciary rule would ensure that clients utilizing financial planning professionals not only receive the very best financial advice, but also at the lowest cost.
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Sounds like a good idea, why end the Fiduciary Rule?
The rule’s opponents maintain that the change will lead to limited investment choices while also being an unnecessary burden on the industry. There’s also a significant financial interest for financial companies — which have long been battling the rule — to maintain the status quo According to the Securities Industry and Financial Markets Association (SIFMA), the fiduciary rule could cost nearly $5 billion to implement and $1.1 billion annually on top of that.
The fiduciary rule obligates him to put his client’s interests above his own.
In an industry in which trust is everything and yet inherently absent when financial professionals may be motivated by their own financial interests, a reversal of the fiduciary rule leaves unknowing clients vulnerable to receiving conflicting advice from retirement professionals. In choosing a Registered Investment Advisor for retirement planning purposes, you can ensure your best interests remains protected — whether or not the fiduciary rule is ultimately implemented.
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The post Reversing the Fiduciary Rule: Does it affect your retirement? appeared first on The Senior List.