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Department of Labor’s Fiduciary Rule: What investors need to know

Department of Labor’s Fiduciary Rule: What investors need to know

You have probably read about the U.S.Department of Labor’s  (DOL) new fiduciary rule that will impact financial advisors  and their clients . Simply stated,the DOL’s  new “fiduciary duty” standard requires  financial professionals  who receive compensation for trans actions  to act in their client’s  “best interest.”

That means  advisors  mus t, for the firs t time, provide full transparency around the fees  and commissions  they charge for retirement plan advice and products . And illustrating the importance of fees and how s mall differences  can add up, the DOL even provided the math:

A percentage point lower return could reduce savings  by more than a quarter over 35 years . In other words , instead of a $10,000 retirement investment growing to more than $38,000 over that period; after adjusting for inflation, it would be just over $27,500.”

WHO WILL BE AFFECTED?

The DOL’s  rule and related exemptions  will require all retirement advisors , whether fee- or commission-based to adapt and practice a fiduciary standard that puts  their clients ’ best interests  first and foremost. And retirement advisors  have until 2018 to acclimate to this  new fiduciary rule.

According to the National Law Review, the final rules  will likely impact broker-dealers  the most, Registered Investment Advisors  the leas t, and with insurance companies  somewhere in the middle.“Record-keepers  who have insurance companies  or mutual fund manager affiliates  will be impacted more than independent record-keepers . And, while not directly affected by the new rules , mutual fund management firms  need to understand their impact, for example, the needs  of broker-dealers  in this  new environment. At this  point, though, it is  impossible to know all of the repercussions. Stay tuned.”

A SKEPTICAL INVESTOR MIGHT ASK:

“If you weren’t always acting in my best interest, whose best interest were you acting in?” Well, that’s  a great question and the first one you should ask your financial advisor. I might also suggest you ask the following questions :

  • As  my financial advisor, will you do your best to evaluate my long-term goals  and recommend investment ideas to help me achieve them?
  • In the course of our business  relations hip and because there are times  when you may buy and s ell investments  for my portfolio, what is  the range of fees  and commissions  you might receive?
  • Do you a promise to act in my best interest on all matters  related to advice and investment recommendations  for my retirement portfolio?
  • Do you or your firm have any potential conflicts  of interest with decisions  you might make on my behalf?

These five questions  will undoubtedly lead to more questions  and the more you are informed, the better off you’ll be. And while your advisor might ask you to sign new paperwork attesting to your understanding of this  new fiduciary rule, remember the most important question of all: If you weren’t always  acting in my best interest, whose best interest were you acting in?

Saving the Sinking Yacht: Helping the Wealthy Avoid Pitfalls in Financial Planning

Saving the Sinking Yacht: Helping the Wealthy Avoid Pitfalls in Financial Planning

Booms and Busts, and What Investors Should Do About Them

Booms and Busts, and What Investors Should Do About Them