The Word The President Of The United States Wants You to Know.March 18th, 2016 by Anchor Bay Capital's Investment Team
With all of the attention on the upcoming election, there are some items that the current administration want to get done before they hand over the keys to The White House. The increasing need for Americans to be responsible for their retirement security has been on President Obama’s agenda from the beginning. From the MyRA, to his proposals in the last State of the Union address, The President has introduced changes that may affect the way we save for the future. While the effectiveness of his proposals are debated in politics, the intent of one new rule regarding your retirement account is something you should be aware of!
In early 2015, the Department of Labor proposed a Fiduciary Duty Regulation that attempts to protect retirement investors by increasing the responsibility of financial advisors and financial services companies to act in the best interest of their clients. Those offering products and services dealing with 401(k)’s, Ira’s or other retirement accounts would be subject to a new “fiduciary” standard. The rule is expected to go into effect sometime this month or next month.
What is a Fiduciary?
A fiduciary is someone who is managing the assets of another person and stands in a special relationship of trust, confidence and legal responsibility. This means that a fiduciary has an ethical and legal responsibility to act in the best interest of the other person first, rather than for their own benefit.
Why is a fiduciary standard important?
If you are seeking advice on how to invest for retirement, how do you know if the advice that you are receiving is good for your specific needs? How do you know that the advice is not steering you into the product that is better for the company or adviser offering it to you? How do you know that the fees that you are paying are not considered excessive? Although we all would hope that the financial industry always operates in the best interest of its clients, the fact is, products that offer commissions may create a conflict of interest. When it comes down to answering your investment and retirement questions would you want someone who is paid by you to give you sound advice or someone who has an incentive to sell you a product? The problem is not that commissions are necessarily bad or unfair, the problem is that currently there is no standard for an advisor to be transparent in their actions unless they are a fiduciary.
What does this regulation hope to accomplish?
The proposed rule basically creates a list of requirements that a financial advisor must adhere to when working with retirement accounts. Some of these requirements include a contract acknowledging the fiduciary relationship, a disclosure of all conflicts of interest and compensation, and a list of alternative products to the one being recommended. The goal is to take a broker’s responsibility beyond just determining if an investment is suitable to actually demonstrating that the investment is prudent with regard to the client’s needs and goals.
For a rule that seems to have the best interest of consumers at the heart of it, it has met some strong opposition. There is a bipartisan divide on the rule. Republicans see the rule as inhibitive toward businesses as they will have major costs involved to comply with the rule. There has been some Democratic opposition also, but for the most part the Dems are falling in line with the current administration. It is obvious that brokers, insurance companies and others who sell products are strongly opposed to the rule.
It’s in our tagline: “What’s in your best interest, is our only interest.
It is still yet to be determined what the final rule will look like, but at Anchor Bay Capital it is business as usual. We follow the fiduciary standard in our investment management and financial planning process. We believe the need for Americans to be responsible with their money and efficient with their retirement savings is essential. Increased expenses, longer life expectancies and economic uncertainty have become the new normal and choosing how to overcome challenges like these is difficult. The trust and humility involved in seeking advice with such major decisions should be matched by the professional you work with.