The Golden Rule Becomes The Fiduciary Rule
The Golden Rule Becomes The Fiduciary Rule
New federal requirements could mean a different relationship between you and your financial adviser.
“Do unto others …” is not only a good idea to maintain healthy relations with friends, neighbors, and acquaintances, it’s also at the heart of most of the world’s major religions. When it comes to professional relationships, such as those between fee-based financial advisers and their clients, the golden rule becomes the fiduciary rule. Now the Department of Labor (DOL) has expanded the reach of the fiduciary rule to include any adviser, regardless of credentials or licenses, who recommends moving money into, out of or between retirement plan resources. This includes IRA, IRA rollovers, Roth plans and even Health Savings Accounts. Also, the new rule applies even if your adviser recommends not moving money.Rationale Behind the New RulePerhaps you’re already working with a financial adviser who puts your interests above their own and whose compensation is reasonable. That’s the basic standard for a fiduciary, as put forward in the DOL’s new mandate, which goes into effect in spring 2017. But if you are working with more than one adviser or broker, or are not sure about their legal obligations or how they are paid for their services, here is what this big change might mean for you.Before the new rule, commission-based stockbrokers and insurance agents have been subject to a suitability standard with the products they recommend and sell. That means they’re supposed to match your circumstances (income, assets, tax bracket, financial lifestyle, time horizon and risk tolerance, among other criteria) to a range of compatible investment and insurance options, including annuities. But suitability doesn’t mean lowest cost, and a suitability standard doesn’t prevent a potential conflict of interest between the recommendation and the broker/agent who makes the recommendation.How Will This New Rule Affect Me?Insurance companies and stock brokerage firms are already working to conform to the rules. Bank of America’s Merrill Lynch, for example, recently became the first major firm to announce it would no longer pay commissions for investment recommendations made for IRA accounts; rather, its brokers will be compensated by ongoing fees through its advisory platform. Other options may include self-directed (i.e., do-it-yourself) accounts and even artificial intelligence-powered “robo" advisers. Computer-driven robo advice is one of the hot innovations in financial services, propelled even more quickly because of the changes needed to accommodate the new fiduciary rules. While some seniors may prefer to self-direct or automate their own way through a volatile stock market, many more clients will likely be comfortable with human, professional-to-client advice, compensated through a small percentage of assets assessed annually to the portfolio. This would presumably allow the focus to be on advice rather than just selling investment and insurance products. However, if you don’t have at least $50,000-$100,000 of retirement assets to invest, you may not readily find a qualified adviser willing to work with you, and “robo” may be your only option.Although the new fiduciary rule is being challenged in court, the inherent customer focus of fiduciary standards will likely ultimately survive. To this end, it’s important for seniors to talk to their current advisers and, regardless of current or future rules, assure themselves of services and products that meet their needs.Written by: Richard M. Weber, MBA, CLU, AEP (http://blog.csa.us/2016/11/the-golden-rule-becomes-fiduciary-rule.html)