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Old 04-06-2016, 07:14 PM   #21
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Does this mean we're not going to get to say, "Yeah, but where are the clients' yachts?" anymore? I doubt it.
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Old 04-06-2016, 08:48 PM   #22
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Like the sellers of variable annuities.
The only time I think a VA may make sense (and could be proposed by a fiduciary) is for someone in a very high tax bracket who has already maxed out all tax-sheltered investment vehicles. And the VA would of course have to be a plain vanilla kind of product with no expensive "extras" that come with the ones that are sold (not bought). In other words, the VA would have to be a no-load version from a place like Vanguard or Fidelity. And no, I don't sell annuities.
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Old 04-06-2016, 09:41 PM   #23
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I would think it would be pretty easy to convince yourself that a high price fund and lots of churning is in the clients best interest. I've seen people convince themselves of some pretty stupid stuff. The customer would then have to prove that you made the recommendations knowing it was not in their interest. It's awfully hard to prove a negative. I'm not sure we're going to see much change out of this.
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Old 04-06-2016, 10:08 PM   #24
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I agree. If conflict of interest is left in the system, then brokers should have to have the title "salesman" on their card, not "advisor."

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Old 04-07-2016, 06:10 AM   #25
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The way one article I read this morning billed this is that this makes 401k's finally worthwhile. I don't see how this rule could have any impact on my employer's 401k: They have only one fund per category. I don't see anything in this rule that says that the selection of funds available in the 401k plan must be affected.
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Old 04-07-2016, 06:46 AM   #26
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I have seen a number of co-workers retire with the following professional brokerage advice: Take the cash balance of the pension to avoid losing money if the company bankrupts (the megacorp pension pool is currently about 160% over funded for liabilities) and roll this with a 401K liquidation into an IRA because it will offer more investment choices (the Fidelity company plan has several dozen choices).

IMHO this was just a naked grab to charge 1% annual commission on a pumped up IRA and was not in the best interest of the retiree - sold by playing on someone's fears or limited financial knowledge.

Although not a fan of more government regulation - this change to have a fiduciary responsibility in retirement advisors was overdue.
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Old 04-07-2016, 06:52 AM   #27
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I eagerly await the flood of righteous indignation and the assorted paid editorials and speechifying about how putting the customer first is really bad for the customer.

So it goes, so it goes.
What he/she said.
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Old 04-07-2016, 07:07 AM   #28
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Another challenge for the investment industry. Find a way around these rules. Get the client to sign that they agree to be ripped off with unintelligible language.
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Old 04-07-2016, 08:02 AM   #29
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I noted on another Board that I've been getting a ton of e-Rewards surveys for financial services- I review possible ads, answer questions about my investment philosophies, etc. and get brownie points that I redeem for Hilton points. I know part of it is that I'm their target market (I get kicked out of some surveys because DH and I have no plans to buy a new car, ever, or I don't buy designer clothes). Someone suggested, though, that with upcoming regulations they may be very interested in what customers and potential customers are thinking.
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Old 04-07-2016, 08:24 AM   #30
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I would think it would be pretty easy to convince yourself that a high price fund and lots of churning is in the clients best interest. I've seen people convince themselves of some pretty stupid stuff. The customer would then have to prove that you made the recommendations knowing it was not in their interest. It's awfully hard to prove a negative. I'm not sure we're going to see much change out of this.
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The way one article I read this morning billed this is that this makes 401k's finally worthwhile. I don't see how this rule could have any impact on my employer's 401k: They have only one fund per category. I don't see anything in this rule that says that the selection of funds available in the 401k plan must be affected.
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Another challenge for the investment industry. Find a way around these rules. Get the client to sign that they agree to be ripped off with unintelligible language.
Agreed, unfortunately. I just don't see any 'teeth' in this, all, subjective, and if an investor is clueless today, he/she can still be tripped up, and would never know to complain.

There needs to be a little client education (it sure would not take much, one paragraph can say a LOT), and a lot of transparency. Unless I'm missing some of the details, this sounds like a lot of trumpets blaring, with very little substance. It might even make things worse - the FA claims they are under these amazingly stringent 'put the customer first' rules, customer feels safe, FA does what he/she always does, and the client doesn't even question it, thinking they are protected? It looked to me like unless the customer complains, no one will know what is happening (maybe I'm wrong on that)?

My MegaCorp had a simple, low cost selection of funds (basically self-managed index funds) in our 401K. Transparency would be showing the median and 'best in class' expense ratios and some description of the offerings.

It reminds me of all the hoopla about making Credit Card bills easier to read. I admit they were rather convoluted - standard wording and clarity would be a good thing I think. But the new statements aren't very good, and certainly not what I'd expect after the effort of actually trying to improve them. IMO, a CC statement should have the following, easy-English, no wiggle room wording, such as:

Account Period: 1/15/2016 - 2/15/2016
Payment Due Date: 3/1/2106
Previous account Balance: $123.00
Additional Charges made this account period: $80.00
Credits/Refunds made this account period: $3.00
Net Charges for this account period: $77.00
We must receive this amount in full by 3/1/2016 to avoid all additional fees: $200.00
(Sum of Previous account Balance: $123.00 and Net Charges for this account period: $77.00)

If payment is not received by 3/1/2016, a late charge of $XX will be added to your account balance.

If payment is not received in full by 3/1/2016, a finance charge of $XX will be added to your account balance.

When I look at my CC bill, that info is sort of spread out, and not all that clear. It's simple info, just spell it out in terms that cannot be missed.

If the gov't could not manage that simple task, I have little hope that this will be any different.

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Old 04-07-2016, 08:58 AM   #31
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I applaud the goals of this legislation, but I wonder how it will be enforced. If it does nothing other than making FAs think twice about what they are doing and raising the profile of FA abuses, then it has some usefulness. However, it's no replacement for an educated consumer. I wish more resources were put into teaching the fundamentals of finances at all levels......it should be taught in school, a compulsory course in college and maybe a course should be offered prior to someone buying any investment.
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Old 04-07-2016, 09:11 AM   #32
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I have seen a number of co-workers retire with the following professional brokerage advice: Take the cash balance of the pension to avoid losing money if the company bankrupts (the megacorp pension pool is currently about 160% over funded for liabilities) and roll this with a 401K liquidation into an IRA because it will offer more investment choices (the Fidelity company plan has several dozen choices).
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Old 04-07-2016, 09:13 AM   #33
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I applaud the goals of this legislation, but I wonder how it will be enforced.
If it's anything like fiduciary liability for qualified retirement plans, a breach is a personal liability. These FA's may need to up their E&O insurance. I need to read up on this some more.
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Old 04-07-2016, 09:24 AM   #34
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"In order to protect the interests of the plan participants and beneficiaries, IRA owners, and plan fiduciaries, the exemption requires the Financial Institution to acknowledge fiduciary status for itself and its Advisers. The Financial Institutions and Advisers must adhere to basic standards of impartial conduct. In particular, under this standards-based approach, the Adviser and Financial Institution must give prudent advice that is in the customer’s best interest, avoid misleading statements, and receive no more than reasonable compensation. Additionally, Financial Institutions generally must adopt policies and procedures reasonably designed to mitigate any harmful impact of conflicts of interest, and disclose basic information about their conflicts of interest and the cost of their advice. "
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Old 04-07-2016, 09:26 AM   #35
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The most egregious faults that they are trying to correct is exactly what nun mentioned, the convincing of retiring employees to roll their funds out of a perfectly good, low-cost 401k plan into an IRA that the "advisor" manages.

There are lots of reasons to roll money out of 401ks (I did this for DH when he retired, even though the 401k was with American Funds, not a totally bad choice). But the investor needs to have a clear idea of what they want, how much it costs, and what they can expect as a reasonable return. I don't see a lot of that in the general public, to be honest. Here, totally different story.

I really don't know how this is going to play out with the Edward Jones type sharpies out there. I imagine they are sweating it a bit.

It is weird for me, because literally the first thing we get in CFP educational materials is the ethics component, and the importance of the basic philosophy of "client first". It isn't hard in practice if you aren't a total sleezeball. But then again...
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Old 04-07-2016, 09:36 AM   #36
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"impartial", "prudent", "misleading", "reasonable", "disclose" (basic) and my favorite "reasonably designed" (to mitigate any harmful impact of conflicts of interest). Do what? I plead incompetence; no law against that.

Are there any licenses or certifications to lose? If not, it looks to me like it is left to the individual to enforce through litigation. Am I missing something?
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Old 04-07-2016, 09:57 AM   #37
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Are there any licenses or certifications to lose? If not, it looks to me like it is left to the individual to enforce through litigation.
you bet - both civil and criminal charges

google "erisa fiduciary breach penalties" - it's bad juju
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Old 04-07-2016, 10:01 AM   #38
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Does anybody know what will be required of the investment companies to show that they are in compliance with the new regulations? My fear is that this will add some costs for firms (e.g. Vanguard) that are already doing the right thing, and these costs will need to be passed on to those of us who invest with them.
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Old 04-07-2016, 10:40 AM   #39
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Anyone who has ever been in role where a lot of not very clearly defined issues may have put him or her squarely in harms way will likely see that the effect of this change might well be to significantly increase costs, and also to make rational service providers want to be paid plenty to offset any possible risks.

Likely there has never been a regulation in any field that didn't increase costs. Sometimes it is worth it, sometimes not.

If you think that today's economy is to be preferred over previous postwar US economic conditions, you should like the effecst of this.

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Old 04-07-2016, 01:57 PM   #40
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Anyone who has ever been in role where a lot of not very clearly defined issues may have put him or her squarely in harms way will likely see that the effect of this change might well be to significantly increase costs, and also to make rational service providers want to be paid plenty to offset any possible risks.

Likely there has never been a regulation in any field that didn't increase costs. Sometimes it is worth it, sometimes not. ...

Ha
Yes, but what I think is different is, there are alternatives to the FA sales-people. Maybe, just maybe, more people will look into the low cost providers, in place of these overpriced sales places, especially if they get even higher priced to deal with the regs. Or, they may become more like the low cost providers and try to compete on that turf instead.

But it looks like this is toothless enough to have little effect either way?

Now, if this means Fidelity and Vanguard need to jump through more hoops for me to just go online and buy a fund, that could raise prices overall. Or maybe Fidelity and Vanguard will need to drop the financial review that they offer?

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