/ Terry’s Columns / Investors Beware — Fiduciary Rule is Dead

Investors Beware — Fiduciary Rule is Dead

By Terry Savage on March 18, 2018

Investors beware! An appellate court just ruled that the Fiduciary Rule is dead – before it was even fully implemented in an attempt to protect your retirement savings.

A lot of people are after your money – especially if you are one of the millions of Americans who will be retiring and rolling over your 40l(k) money into an Individual Retirement Account. Once you do a rollover to keep your money growing tax deferred, you will be at the mercy of the “financial advisor” or broker who can recommend expensive and complicated products you don’t really need.

The Labor Department recognized this challenge to retirement security when it created the Fiduciary Rule two years ago. That rule would have required all financial advisors, brokers, and insurance salespeople to do these two things:

  • Fully disclose all fees, commissions, hidden costs, and incentive programs in any recommended investment.
  • Put the client’s 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. With more than $6 trillion invested in 40l(k) plans now, the average account size is just under $100,000.  But for those who are ages 60-70, the average 40l(k) balance is well over $160,000.

That’s why the industry trade associations are gloating over the ruling by the U. S. Court of Appeals, 5th Circuit, which just struck down the entire fiduciary rule requirement. The Securities Industry Association, the Chamber of Commerce, and numerous other business groups opposed the rule that was designed to protect unsuspecting consumers of financial products.  They argued that the “cost” of telling people the truth about recommended investments would, in the end, keep the industry from providing any advice to consumers.

If that sounds ridiculous, it is!   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 with the rule struck down in the courts,  the financial services industry is the big winner – and consumers stand to lose a lot.

Actually, the financial services industry had already 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?

Well, the Fiduciary Rule is officially dead. Now, the securities and insurance industries will revert back to the old standard of “suitability.”  That rule says if a salesperson recommends an investment that is “suitable”, they will no longer 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 Standard. But despite their long-running responsibility to protect investors, they haven’t gotten around to it yet.  And after the court’s ruling, crafting an equally strong standard as the Fiduciary Rule may be difficult, if not impossible.

How this impacts you

So, investors beware! Now it’s up to you to carefully choose an advisor who is worried about YOUR retirement, not theirs!  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 advisor. And you can directly search the disciplinary histories of all securities and insurance salespeople.
  • Ask your financial advisor or broker or salesperson if he or she promises to act as a fiduciary. Just because there isn’t a law, it doesn’t mean that an advisor can’t sign a personal pledge to fully reveal all costs and commissions – and to put your interests first. In fact, a Certified Financial Planner (CFP) agrees to abide by those high standards. Go to www.CFPBoard.org to search for one.
  • Find a “fee-only” financial advisor at www.NAPFA.org – the website of the financial planners who charge fees, not commissions. Research their backgrounds and choose a fee-only Certified Financial Planner.

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.

money

ASK TERRY

a personal
finance question