'Customer First' Fiduciary Duty Regulations for Retirement Plans Issued

[jdmorton]

The Labor Department issued regulations requiring financial advisors to put their customers interests first with regard to retirement planning and 401(k) plans. Here is a excerpt from the linked New York Times article:

"The Labor Department, after years of battling Wall Street and the insurance industry, issued new regulations on Wednesday that will require financial advisors and brokers handling individual retirement and 401(k) accounts to act in the best interests of their clients."

Link: http://www.nytimes.com/2016/04/07/y...irement-accounts-financial-advisers.html?_r=0

 

[Sarah in SC]

From another article on the new rules:

As part of the overhaul, DOL has also lengthened the compliance timeline under the rule to one year from the original eight months, Perez said, and “phased in the implementation so firms will have until Jan. 1, 2018” to come into full compliance.

<snort>
Oh, jeez, "it will take us til 2018 to figure out how to be fiduciaries". Um, yeah, the same standard that CFPs have required since forever. Buyer (still) beware the broker!

 

[ERD50]

From another article on the new rules:

As part of the overhaul, DOL has also lengthened the compliance timeline under the rule to one year from the original eight months, Perez said, and “phased in the implementation so firms will have until Jan. 1, 2018” to come into full compliance.

<snort>
Oh, jeez, "it will take us til 2018 to figure out how to be fiduciaries". Um, yeah, the same standard that CFPs have required since forever. Buyer (still) beware the broker!

How do you "phase in" a fiduciary standard? "Yes dear customer, I sort of will kind of try to put your interests ahead of mine. If you come back in 6 months, I will try even harder!"?

Isn't this the legislation that the industry was fighting with some ad that depicted Mr & Mrs Doe having a conversation about how these new rules mean that they can no longer go to their long time, trusted advisor "Sue" to help them with all this complicated financial stuff? They are all indignant that the gov't wants to interfere with the relationship they have with financial wizard "Sue".

I'm pretty sure they didn't mention that "Sue" was charging them 1% and putting them in dozens (to make it look sophisticated) of her company's expensive under-performing funds. All for something they could probably DIY and do better with near zero effort.

-ERD50

 

[marko]

The Labor Department? The DOL oversees financial advisors?

This would be like the Agriculture Dept creating the food pyramid. Oh, wait...

 

[MichaelB]

The Dept of Labor does not oversee financial advisors, but it does have some oversight over retirement plans and savings. Here is a link to the DOL FAQ on this measure FAQs: Conflicts of Interest Rulemaking — Protect Your Savings — U.S. Department of Labor

 

[aggie76]

more nanny state foolishness.

 

[Gone4Good]

How do you "phase in" a fiduciary standard?

Without reading the details my guess is that the delay relates to training and perhaps testing requirements. Broker dealers already have to pass a series of tests and also have continuous "education" requirements (which mostly involves staring at a computer screen and pushing the "next page" button until you've scrolled through all the pages of material). It's possible that the new rules also have similar requirements attached but those requirements won't be enforced immediately.

 

[MichaelB]

Let's not ruin the thread with political comments, please.

 

[MRG]

The Labor Department issued regulations requiring financial advisors to put their customers interests first with regard to retirement planning and 401(k) plans. Here is a excerpt from the linked New York Times article:

"The Labor Department, after years of battling Wall Street and the insurance industry, issued new regulations on Wednesday that will require financial advisors and brokers handling individual retirement and 401(k) accounts to act in the best interests of their clients."

Link: http://www.nytimes.com/2016/04/07/y...irement-accounts-financial-advisers.html?_r=0

Interesting read. I'm hoping that it still has an impact when put in force. There's a few items that would suggest a concern:

(From the article)
"Secretary Perez said that government rule makers had made several changes to their last proposal in an effort to respond to the criticism and avoid creating a bias toward certain investment products. He said advisers would not be obliged to sell lowest-cost products if a more expensive product like a variable annuity made sense for a particular individual’s situation."

I'm having a hard time understanding how "fiduciary" and "a variable annuity made sense" go together. But maybe that's just me.

 

[Big_Hitter]

I'm having a hard time understanding how "fiduciary" and "a variable annuity made sense" go together. But maybe that's just me.

it's does make sense for certain individuals

 

[harley]

I'm having a hard time understanding how "fiduciary" and "a variable annuity made sense" go together. But maybe that's just me.

it's does make sense for certain individuals

Like the sellers of variable annuities.

 

[GalaxyBoy]

A casual acquaintance is a broker and he was saying we should all say "good-bye" to no-fee IRA accounts. I think he was saying if they couldn't collect our money indirectly, they would start doing it directly. I didn't get into it with him as it was Happy Hour and he's my coworker's boyfriend, but I just thought, "pooh!"

I say it's about time they started being more transparent.

 

[Gone4Good]

A casual acquaintance is a broker and he was saying we should all say "good-bye" to no-fee IRA accounts.

That would surprise me. I doubt Vanguard, Fidelity, and the gazilion other fund companies are really going to stop offering no-fee IRAs because FAs now have fiduciary duties to their IRA clients.

 

[ERD50]

A casual acquaintance is a broker and he was saying we should all say "good-bye" to no-fee IRA accounts. I think he was saying if they couldn't collect our money indirectly, they would start doing it directly. I didn't get into it with him as it was Happy Hour and he's my coworker's boyfriend, but I just thought, "pooh!"

I say it's about time they started being more transparent.

Are Vanguard, Fidelity, and the gazilion other fund companies really going to stop offering no-fee IRAs because brokers now have fiduciary duties to their clients.

I doubt that very much.

+1.

I think the relevant passage above is: "A casual acquaintance is a broker ... "

What's the saying? It's near impossible to convince someone of something, if that something challenges their livelihood?

-ERD50

 

[youbet]

A casual acquaintance is a broker and he was saying we should all say "good-bye" to no-fee IRA accounts. I think he was saying if they couldn't collect our money indirectly, they would start doing it directly. I didn't get into it with him as it was Happy Hour and he's my coworker's boyfriend, but I just thought, "pooh!"

I think what your casual acquaintance, the broker, meant was that we should all say goodbye to no-fee IRA accounts at the firm where he works. Fine. That's of no concern to me. I wasn't looking to establish an IRA with a firm that either wants to charge me for "advise" or for the privilege of having an IRA account with them.

 

[Gone4Good]

I think what your casual acquaintance, the broker, meant was that we should all say goodbye to no-fee IRA accounts at the firm where he works. Fine. That's of no concern to me. I wasn't looking to establish an IRA with a firm that either wants to charge me for "advise" or for the privilege of having an IRA account with them.

I'd go the next step further. I'm not looking to establish a relationship with a firm that will have to change it's business model if they're not allowed to sell me products against my best interest.

 

[youbet]

Buyer (still) beware the broker!

Or anyone whose compensation is wholly or partially dependent on commissions collected from you when you make "investments" they've suggested.

 

[M Paquette]

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.

 

[Frankie1926]

How does the new rule handle clients that were sold financial crap that benefited the broker, do they have to call em up and tell them hope putrid it is?


Sent from my iPad using Early Retirement Forum

 

[steelyman]

I think it might put some Market Timing Winged Monkeys outta work.

 

[scrinch]

Does this mean we're not going to get to say, "Yeah, but where are the clients' yachts?" anymore? I doubt it.

 

[panacea]

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.

 

[harley]

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.

 

[scrinch]

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."

Sent from my XT1254 using Tapatalk

 

[bUU]

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.