The Department of Labor (DOL) Fiduciary ruling that was finalized in 2016 began to be implemented this month. The ruling requires all financial advisors of retirement accounts to act as a fiduciary, acting in the best interests of their clients. It sounds like a great idea, but as government often does in its effort to protect the people, it has gone, in the opinion of many including myself, way too far.
The rule is confusing, with one result likely being fewer investment options in retirement accounts. Since the DOL only claims authority over retirement accounts, the rules as to what you can and cannot invest in as per your individual advisory firm will likely not apply to your non-retirement funds. I compare it to a government prohibiting the drinking of alcohol but only on Monday, Wednesday and Friday. Only a regulator can find logic in that type of approach.
As the rule is implemented over time you can expect phone calls from your advisor informing you of the required changes. Many investments previously available to you will no longer be allowed, (although you can still buy them in your non-retirement accounts). The rule also requires investment firms to evaluate the way the client is charged for services, so changes can be expected. Imagine for a moment that you go to the store to buy a gallon of milk for $3. You already know that included in that price is an amount for dozens of individuals in the production and distribution chain from cow to market, but you just pay the grocer three bucks. Now suppose that a regulator decided that the $.15 cents earned by the person who sold the milk to the grocer, and the $.20 cents charged by the pasteurizing firm had to be separated out and charged to you separately. You can imagine the slowdown at the checkstand and the added cost to the grocer for having to take these extra steps. Some stores might decide to stop selling milk altogether, or others might require larger purchases to justify the cost and hassle. At the very least you could expect to be paying more for milk.
Good or bad, some results of the new DOL rule will be, and already have been, increased costs to deliver financial products, fewer investment options, and for many firms a decision to cease or reduce service to smaller clients. This is why our particular firm began our Nextgen program to assist these folks who often need the most help because they cannot afford to hire their own investment advisory team.
Many in congress are working to correct the problems caused by the DOL rule but as is often the case in government, once the freight train gets moving it can be difficult to stop. In the meantime, financial firms are working frantically to comply with a rule that is expensive, restrictive, confusing, and may still go through many changes. When your financial advisor calls to discuss required changes to your account, try not to shoot the messenger.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 375 E Riverside Dr, St. George, UT 84790
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