How the New Fiduciary Rule will Help Your Retirement Fund
Starting in April 2017 your financial professional will be held to a new fiduciary standard. So what does this mean to you? The fiduciary standard is the standard that your financial professional is held to stating that professional will prioritize your best interest as an investor. More importantly, it means that the professional will put your financial gain ahead of their own. This is something that I specifically have experienced as a problem with some brokerage firms. Many moons ago I worked as an advisor and I know that many advisors will put preference on investment vehicles that generate higher commissions for the advisor. This is a very concerning matter and should not sit well with any investor. A basic example of this would be that a specific investor may benefit from diversifying using mutual funds, but because of a low commission pay out, the advisor will decide to invest a clients funds in corporate bonds, which just happen to pay double the commission. Every firm is different and the first piece of due diligence that an investor should do is ask what commission payouts are for specific investment vehicles.
One important note is that the fiduciary standard is only held to financial and investment professionals registered with the Securities and Exchange Commission. Brokers and insurance agents are not held to this standard. They are held to a “suitability standard”. This creates much grey area because this standard only states that the investment recommendation be suitable for the client, not necessary the best option.
The change will that will be going into effect will hold all professionals to a fiduciary standard, including brokers and insurance agents. The new rule will apply to all financial professionals offering investment advice on retirement accounts, including IRAs and 401(k)s. This includes the suggestion of investments when rolling over a 401(k) into a traditional or roth IRA, or when setting up a solo 401(k), SEP-IRA, or simple IRA. One should not that taxable brokerage accounts are NOT being held to this standard by financial professionals.
The new definition will not take effect until next spring, so please do your due diligence and ask your advisor what your commission fees are; the difference between 2 and 4 % can make a substantial difference on your retirement savings.