Financial advisers are not required to act in your best interest when recommending investments for retirement accounts or providing guidance about your retirement plans. Is it surprising to learn that?
You’re not the only one. According to Financial Engines, the largest independent registered investment advisor in the country, 46 percent of Americans believe that all financial advisors are fiduciaries. They are legally required to make recommendations for retirement savings.
In April 2016, the U.S. Department of Labor (DOL), issued regulations that required advisers to be fiduciaries in making retirement savings recommendations. Although the so-called “fiduciary law” was scheduled to take effect in April 2017, its future is uncertain.
Trump’s administration has decided to stop the rule from being implemented in response to strong lobbying from certain parts of the financial sector. Trump will sign Friday’s presidential memorandum instructing the Labor Department not to implement the new rule for 90 more days while the DOL reviews it.
Financial industry groups have also filed lawsuits to stop the fiduciary rule. Additionally, the GOP-controlled Congress separately introduced a bill that would delay its implementation.
According to the Financial Engines survey, many Americans are not aware of the rules for financial advisors.
The overwhelming majority of respondents to the survey support the DOL regulations in their intent.
The fiduciary rule attempts to address one of the most important issues: how advisers are paid for their recommendations. This is because brokers and agents receive commissions on many insurance and investment products, which can lead to financial conflicts of interests.
DOL is concerned about brokers and agents directing clients to investments that pay higher compensation than other investments. This could be despite the fact that other investments may have better performance for the client. This conflict of interest would be prevented by the new regulations.
Respondents were asked about the payment structures that can cause conflicts in investment advice by Financial Engines. These structures are bad for me, according to 55% of respondents. 35% said they were not sure and 10% said they are good for them.
A number of academics, professional advisor organizations, and consumer groups support the DOL fiduciary Rule.
Two prominent financial advisory firms, Financial Engines and Garrett Planning Network, have stated that they are already acting as fiduciaries for their clients. Bank of America Merrill Lynch, a financial giant, is working to eliminate conflicts of interest prior to the regulations taking effect. Other financial institutions are also scrambling to update their products in order to comply with the regulations.
Opponents of regulations claim that the DOL is overreaching in regulating, and that regulations are too complicated and burdensome. They claim that the regulations will reduce financial advice for Americans. The American Council of Life Insurance and the Insured Retirement Institute are among the opponents. Grover Norquist of Americans for Tax Reform, Representative Paul Ryan, and the GOP Congress are also oppositional.
Retirement investors know that you are the best guardian of your financial security and investments. You shouldn’t depend on the government to look out for your financial security.
Be a savvy and informed investor. Ask your advisor if there are conflicts of interest caused by compensation. Ask your adviser about the plans to comply with these new rules. If you get a wrong answer, it might be time to change advisers. After all, there are prominent financial institutions that will put your interests first and you can give your business to them.
It’s American values at work. Ask how much you are paying, and make sure that you get fair treatment and good value.
Note: This story was updated to reflect President Trump’s decision to direct the DOL not to implement the fiduciary rule in April.
