A Proposed DOL Rule Has Created A Big Fuss

 

By Roxanne Fleszar

 

Behind the scenes in the investment industry, there is much angst over a proposed Department of Labor (DOL) rule to change the advice standards for retirement accounts. The comment period for the proposal closes on July 20th. And, trust me, much of the financial services industry is speaking out. They oppose the rule. President Obama has spoken in favor of it; he views it as a centerpiece of his “middle-class economics” initiative.

 

Why should an investor care? Because there are inherent conflicts of interest in providing investment advice. Is the advisor a “fiduciary” bound to act in their best interests or a salesperson meeting a lower suitability standard? True fiduciaries, which include registered investment advisors like my firm, are held to the highest standard. We must place our client’s interests above our own. We must have transparency and disclose all fees and any potential conflicts of interest to our clients. And yes, that is in writing in documents provided to potential clients before they retain us.

 

The DOL has taken a hard look at a high commission, high fee products within retirement plans that may have been deemed “suitable” by brokerage standards, but were in the salespersons best interest, not the client’s. The administration has estimated that retirement plan investors lose a whopping $17 billion a year because of broker conflicts of interest.

 

Let’s take a step back. The role of the Securities and Exchange Commission (SEC) is to protect investors, maintain orderly, fair and efficient markets as well as facilitate capital formation. The role of the DOL is DOL is to promote the welfare of wage earners, job seekers and retirees; improve working conditions, advance opportunities for employment; and assure work-related benefits and rights.

 

The SEC has been discussing whether they should create a uniform fiduciary standard for all brokers and investment advisors for well over a decade. The folks at the DOL are tired of waiting. As their role is to look after the work related benefits of employees, they have proposed a rule which will cover company sponsored retirement plans. If you are a participant in a 401(k) savings plan, a 403(b) tax-deferred retirement plan, a SIMPLE IRA, or own an IRA, these new rules were designed for you.

 

Under the DOL’s proposed rules, any individual receiving compensation for providing advice that is individualized or specifically directed to a plan sponsor, plan participant or an owner of an IRA, is considered a fiduciary. Decisions such as what assets to buy or sell and whether to roll-over assets from a retirement plan to an IRA are covered.

 

The brokerage industry would like the SEC to be first to provide a fiduciary-duty rule for all retail investment advice. Interestingly, if the SEC would enforce the existing rules as written, any advice that is over being “solely incidental” to brokerage services would require that the broker would need to be a registered investment advisor, hence a fiduciary! Oh, how I wish they would let it be that simple.

 

So what does all this mean to you, the average investor? Until this DOL proposal passes, or the SEC enforces the rules regarding advice as defined above, ask for transparency when dealing with your investments. Understand the fine print in any contract, read your investment statements as they become available, and meet with your counselor on a periodic basis to truly understand if you are on track to meet your investment-retirement goals.

 

Roxanne E. Fleszar, CFP, ChFC is President of Financial Resources Management Corp, a registered investment advisory firm with offices in Key West, Boston and Naples.

[livemarket market_name="KONK Life LiveMarket" limit=3 category=“” show_signup=0 show_more=0]