There’s a possibility that the new Administration will move to do away with the Department of Labor Fiduciary Rule. In case you’re not aware of the Fiduciary Rule, Ben Steverman over at Bloomberg provides a quick summary:
Brokers often get incentives to steer clients into certain financial products, which can charge very high fees. President Barack Obama’s White House had estimated that these conflicts of interest were costing American investors $17 billion a year. The Department of Labor’s fiduciary rule, scheduled to go into effect in April, would have fought this, requiring financial advisers to put clients interests before their own when providing advice on retirement accounts.
At the end of the day, it’s a rule designed to put consumer’s interests first and to ensure that they’re not getting bilked by excessive fees and sold products they don’t need. The new legislation has already had sweeping effects on the financial services industry:
Firms have moved away from their higher-cost products and toward making their fees clearer and easier to explain to clients. Bank of America Corp. and JPMorgan Chase & Co. both announced they’d stop charging commissions on individual retirement accounts. Insurance companies are also changing their product lineup, and their sales of variable annuities, a costly investment product much-criticized by personal finance experts, have been plunging.
If the new Administration ends up rolling back the Fiduciary Rule, Steverman offers three helpful tips on how consumers can still protect themselves:
Clients can ask: “Are you a fiduciary?” Many are already, which means they’re required by law to watch out for your best interests, much as doctors and lawyers are. That won’t change based on Trump’s order. Investors can also ask detailed questions about how their advisers are being paid. What incentives do they have to steer you into particular products? Advisers may operate differently if they’re paid by the hour or by a percentage of the assets they manage, vs. if they’re paid extra commissions for certain in-house products. Finally, investors can keep a close eye on how much they’re paying, with the understanding that a fee of 1 percent or 2 percent can have a surprisingly large cumulative impact on their financial future if it’s charged year after year after year. Read the full story here
These suggestions are helpful. At our firm, we get asked these questions every week, and we’re always happy to answer them. The bottom line is this: Consumers will need to ask tough questions of the advisors with whom they work. As Steverman rightly points out, the best way a consumer can protect herself is to work with an advisor who is a fiduciary. Fee-only fiduciaries, usually members of the National Association of Personal Financial Advisors (NAPFA), take an oath to always act in the client’s best interest and to always act in a fiduciary capacity.