In August, the Department of Labor (DOL) proposed to delay the launch of the final portion of the new “fiduciary rule” until July 2019. Part of the rule went into effect in June of this year, mandating that any financial professional making financial recommendations to a client with regard to an individual retirement account (IRA) act as a fiduciary. This means that these financial professionals must provide advice that is in the best interest of their clients, rather than for their own benefit.1
The part of the rule that could be delayed is the requirement that financial professionals who wish to charge commissions sign a “best-interest contract” with each IRA client. The contract provides details as to how they will be paid for their recommendations. It represents the primary enforcement mechanism of the fiduciary rule – with a contract in place, individuals would find it easier to sue to recover losses resulting from poor retirement investment and financial advice.2
Although the new DOL rule hasn’t been fully launched, its effects are being felt. One unintended consequence of the new rule is that some advisory firms have decided to stop offering retirement advice to clients with small account balances. A survey of financial advisors found that 35 percent said they wouldn’t advise clients with IRAs worth less than $25,000.3
With the future of the DOL regulation unclear, some states are considering their own fiduciary rules. In fact, Nevada passed a law in June that holds financial professionals to the fiduciary standard when advising clients on their retirement accounts. The state senator who proposed the bill, Aaron Ford, said he took action because of the uncertainty surrounding the federal law. “I felt it was important to protect Nevadan citizens in the event the federal government wouldn’t,” he told WealthManagement.com.4
Despite the delays in the DOL fiduciary rule, many financial services firms have already invested in making the changes necessary to implement the rule’s standards throughout their firms, so it is unlikely they would halt those efforts at this point – even if the rule were revoked.5
If you have questions about the DOL rule and what it means to you, please don’t hesitate to give us a call. It’s our responsibility to evaluate and assess your financial situation and only make recommendations that are in your best interest, and we do so with integrity and transparency.
Nate Miller
(785) 760-1165
Content prepared by Kara Stefan Communications.
1 Tobie Stanger. Consumer Reports. Aug. 25, 2017. “Why Saving for Retirement Is Getting Harder, and What You Can Do About It.” https://www.consumerreports.org/retirement-planning/why-saving-for-retirement-is-getting-harder-and-what-you-can-do-about-it/. Accessed Oct. 10, 2017.
2 Greg Iacurci. Investment News. Sept. 11, 2017. “DOL fiduciary rule has enforcement gaps — and they could widen.” http://www.investmentnews.com/article/20170911/BLOG03/170919995/dol-fiduciary-rule-has-enforcement-gaps-x2014-and-they-could-widen. Accessed Oct. 10, 2017.
3 Liz Skinner. Investment News. “10 unintended consequences of the DOL fiduciary rule.” http://www.investmentnews.com/gallery/20160505/FREE/505009999/PH/10-unintended-consequences-of-the-dol-fiduciary-rule. Accessed Nov. 7, 2017.
4 Michael Thrasher. WealthManagement.com. June 26, 2017. “Other States Considering Their Own ‘Fiduciary Rules’ After Nevada’s Becomes Law.” http://www.wealthmanagement.com/industry/other-states-considering-their-own-fiduciary-rules-after-nevada-s-becomes-law. Accessed Nov. 7, 2017.
5 Sandra Block. Kiplinger. Feb. 5, 2017. “Why the Fiduciary Rule for Retirement Savers Is Here to Stay.” http://www.kiplinger.com/article/retirement/T047-C000-S003-fiduciary-rule-for-retirement-is-here-to-stay.html. Accessed Oct. 10, 2017.
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