YOUR FINANCIAL FUTURE / It’s time to put clients first

By Roxanne Flesar

So what is the DOL? It is the Department of Labor and this agency has some folks really riled up over their effort to raise the investment advice standards for brokers who work with retirement plans. Essentially brokers and insurance agents will have to put their clients’ interests ahead of their own under the proposal that was announced this week. Fortunately, the Obama administration and many Democrats in Congress favor the proposal. Unfortunately, it faces opposition from Republicans and Wall Street.

So what is at stake here? The $11 trillion held in 401(k) plans and IRA’s. President Obama and his team are aware that tens of millions of people are nearing retirement age and will be making very important decisions regarding their retirement savings such as should they roll-over their pension assets to an IRA or retain them with the employer? Should they purchase an immediate annuity for guaranteed income? How should the funds be invested and what vehicles will meet the client’s objectives?

This proposal was first issued in 2010; Wall Street has been working against its passage ever since. Lobbyists and members of Congress will have 6 months or so to comment on the proposal and the topic is receiving a great deal of attention.

The DOL regulations currently in use were written 40 years ago before IRAs and 401(k) plans even existed. There is a suitability standard that an investment recommendation must meets a clients’ needs and risk tolerance. The proposed standard goes much farther in that the salesperson would have a fiduciary obligation to recommend investments are in the best interest of the customer.

Do you think that Americans who have been through the dot-com and technology bust of 200-2003, the housing crisis and the banking crisis of 2008-2009 deserve to have their interests be of utmost interest? I do. (Full disclosure, we are a fee-only registered investment advisory firm and acknowledge in writing that we act as a fiduciary to our clients).

Why is their opposition to the new proposal? Variable annuities are a popular and profitable product for brokerage and insurance firms; they will be most affected by the change as they can charge high fees and commissions. I have had new clients bring their annuity contracts to me for assessment and fees often exceed 3% annually.

Sixty-one percent of variable annuity sales occur in IRA accounts. This begs another question. Why does one need the tax-deferral of a variable annuity when an IRA is by design already providing tax-deferral?

The argument given by Wall Street is that smaller investors can’t afford to hire a fee paid advisor who acts as a fiduciary. There are mutual fund firms with low expenses and even robo-advisor firms that are providing investment services at low cost to serve smaller accounts.

The true disservice to the millions of folks planning for retirement will be retaining the status quo.

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.

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