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.
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.
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.
-ERD50