Battle Creek Rotarian and Financial Advisor, Brent Fast discussed a federal regulation that affects all retirement accounts; nationwide. Admittedly though, long term projections are that the majority of people do not save enough for retirement. This has the potential to create massive dependence on public programs as people age.
The Department of Labor’s Fiduciary Liability Rule was passed last summer and became effective April 10, 2017. Called the “best interest” rule, Brent acknowledged that the intent was good but the impact is yet to be fully understood. Presently, there is a 60-day delay making the rule effective June 9. However, this administrative rule could be repealed by the Secretary of the Department of Labor.
The rule requires investment counselors to clarify and openly explain all the costs associated with their service thus removing potential conflict of interest. Advisors need to make it public if they will benefit from the sale of a specific product. This rule could ultimately impact all types of accounts, not just retirement accounts. One other result is that some brokerage firms are dropping their smaller sized investors.
The biggest downside to the rule is that investors will now be able to sue the investment advisors if they don’t believe that they had their best interests as a priority. The long-term impact is yet to be understood. But, it’s safe to say this has a significant impact on the investment industry. Affirming that commission earned could be viewed as a conflict of interest, Brett said that most firms now offer management fee based accounts.
If you work with a firm, your advisor should have already discussed this rule with you. Brett, along with other Rotarians who are in the investment business, expressed willingness to discuss this rule and its impact further if you wish.