You may have heard that
The Department of Labor (DOL) has issued new regulations that impose a “new”
duty on financial advisors on what they recommend for their clients’ IRA,
401(k), and other qualified accounts such as Profit Sharing plans. The objective of this rule, which takes effect
on April, 2017, is to set a fiduciary standard and regulate the compensation
that advisors receive on the recommended investments they provide their clients.
What this directly means
is the feds want to end the practices that some advisors use to charge higher
fees for clients and making unsuitable investments for clients. Additionally, the feds
want to insure that ALL recommendations are based solely on the clients’ best
interests first and foremost and not the advisers.
From my perspective of over
thirty years, this is much ado about nothing.
Since investments regulations were first implemented by the SEC (Securities
and Exchange commission and more recently FINRA (Financial Industry National
Regulatory Agency) rules have already been set which state that advisers must
always act in the best interests of the clients.
Furthermore are clients
being overcharged on some of their investments?
Absolutely Yes as I have seen this in some reviews I do of clients’
portfolios. Will these new regulations curb that practice? I doubt that it will. All it spells out is that advisors must
document and disclose fees, charges, surrender fees and all related expenses
and the very small percentage of advisors who do place their interests first
above the clients will be sure to circumvent those so-called new rules. How?
There is a section of the ruling called Best Interest Contract
(BIC). This exemption states that
existing forms of compensation are still permissible. In other words if higher commissions are in
the best interests of the clients, than they would be justified.
I know personally that I and
many of my colleagues have always not only placed the clients best interests
first but have also given a full disclosure of reasonable fees and all expenses to all clients. In many regards, this is grandstanding by
many politicians on both sides of the aisle to gain more votes.