(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Mark Miller
CHICAGO, June 8 Friday is the day, folks.
Starting on June 9, all financial advisers providing
guidance on retirement accounts must adhere to the new U.S.
Department of Labor rule requiring that they act in your best
interest rather than their own.
The controversial rule survived a bruising seven-year battle
against entrenched interests in the financial services industry,
which were seeking to protect excess fees that cost retirement
savers $17 billion a year - a full percentage point in annual
returns, according to U.S. government estimates during the Obama
Most recently, the rule survived a 60-day delay by the new
administration under President Donald Trump, which has
considered repealing or revising it.
The Trump administration may yet try to weaken or undo parts
of the so-called fiduciary standard, and several important parts
of the rule are due for completion in January. These include
details on adviser exemptions and disclosures that must be made
For now, the rule has teeth. It permits consumers to sue
advisers if they do not think they have met their fiduciary
What will the rule mean for retirement savers, and how can
you take advantage of its protections? The following are some
key issues to consider:
WHAT HAS CHANGED?
The fiduciary rule imposes requirements on advisers who were
previously not required to act in clients' best interest.
If you are surprised to learn that all advisers were not
already required to do this, you are not alone. A survey
released in April by Financial Engines, which advises workplace
savers, found that 53 percent of Americans mistakenly thought
that all financial advisers already adhered to a best interest
Registered Investment Advisers (RIAs) are already
fiduciaries; now broker-dealers and insurance company
representatives will have to act in your best interest whenever
tax-advantaged retirement accounts are involved. Previously,
they were governed by a far weaker "suitability" standard that
allowed them to sell higher-cost products that might otherwise
fit your investment goals.
DO A CHECK-UP
If you already work with an adviser, expect to receive a
contract spelling out that the relationship is now governed by
the new rule and specifying that advice will be in your best
interest, costs will be no more than reasonable and that no
misleading statements are permitted.
The rule is limited to tax-advantaged retirement accounts -
such as IRAs and 401(k) accounts - including rollovers from
workplace plans to IRAs.
But do not stop there. Insist that any adviser you work with
accepts fiduciary responsibility.
An easy way to separate wheat from chaff is by asking an
adviser to sign the Committee's fiduciary oath, a legally
enforceable contract that commits advisers to put your interests
first. (To download the fiduciary oath, click: here)
Scott Puritz, managing director of Rebalance IRA, a low-fee
fiduciary advisory firm that manages retirement investments,
recommends requiring any prospective adviser to provide a
detailed accounting of all expenses applied to your retirement
accounts, including adviser, fund, marketing and distribution
and transaction costs.
Also request a detailed accounting of any one-time expenses,
such as front-end loads on mutual funds plus exit or surrender
penalties. You also want full disclosure of any conflicts of
interest that an adviser may have that could impact her advice
Finally, ask for a copy of the firm's U.S. Securities and
Exchange Commission Form ADV Part 2, which requires brokers to
disclose the types of services provided, fee schedules,
disciplinary information and any conflicts of interest.
It is also important to conduct a thorough background check
on anyone you intend to hire, advises Kate McBride, former chair
of The Committee for the Fiduciary Standard, a group of industry
practitioners and experts.
Do a search of FINRA's Brokercheck database (brokercheck.finra.org/),
and a Google search for news on the adviser’s firm.
"Be on the lookout for firms that have paid big fines in the
past five years for wrongdoing or over-charging," McBride says.
"If there are more than a handful of cases, think carefully
about whether you want to use that firm."
The Pittsburgh-based Centre for Fiduciary Excellence
maintains a database of roughly 200 vetted fiduciary advisory
firms around the United States that have subjected themselves to
extensive audits of their investment practices and client files.
(To access the free database, click here: here)
"People will spend more time looking for a contractor to fix
their sinks than they do hiring an adviser," McBride adds. "You
have to do your homework."
(Editing by Lauren Young and G Crosse)