The Department of Labor has released their final rule on reducing conflicts of interest on retirement savings advice. As expected, the new rule now requires any person who provides investment advice on retirement accounts like 401(k) or IRAs to act as fiduciaries and put their client’s best interest first. The goals are to save investor money otherwise directed to hidden fees and commissions, while helping even the playing field for the financial advisors have been acting as fiduciaries all along.
Commentary. Lots of people have most of their retirement savings in 401k plans, which are often eventually rolled over into IRAs. There are entire firms of salespeople who try to capture this money and skim off huge commissions, and now they will have to act as fiduciaries.
While it can be touted as an overall “win” for consumers, there are still plenty of grey areas. The final rule requires firms to be compliant on several broader provisions by April 2017 and fully compliant by Jan. 1, 2018. Existing investments are grandfathered in. Small 401(k) plans are exempt from some of the rules. Firms can still technically sell you things like high fee variable and indexed annuities in IRAs and brokers can continue to recommend proprietary products, there just has to be a believable shred of reason behind it.
I’m going to be honest, I read about 20 articles on this subject and my head hurt with all the little details. This rule could have really blown up large parts of the industry, but you can tell they really tried not to disrupt anything significant. Try reading some for yourself:
In other words, the nastiest stuff with the highest hidden fees and commissions will probably go away. So it’s a win around the edges. For the savvy DIY investor or the person with their money with a trustworthy registered investment advisor (RIA) that was already a fiduciary, the effect will likely be small if anything.
Hopefully, if you decide to have someone help you manage your investments, they are already a fiduciary, have been for a while, and don’t need someone to tell them to act in your best interest.