By Dewang Sanjanwala
You may assume that when a broker, advisor, insurance agent, or consultant makes recommendations about your retirement account, the advice is in your best interest.
But that hasn’t always been the case. While the majority of advisers act in the best interest of their clients, not all have been legally required to do so, and some have been swayed by hidden fees or commissions to recommend investments that weren’t necessarily the best choice for their clients’ individual needs.
A new rule aims to fix that. Anyone managing retirement assets will be held to a fiduciary standard, the highest legal level of good faith and trust. That means that those in that position will be required to put the financial interests of their clients above their own.
According to the Employee Benefits Security Administration, the rule applies to those who:
- Represent or acknowledge that they are acting as a fiduciary within the meaning of ERISA or the Internal Revenue Code
- Render advice pursuant to a written or verbal agreement, arrangement or understanding that the advice is based on the particular investment needs of the advice recipient
- Direct the advice to a specific recipient or recipients regarding the advisability of a particular investment or management decision with respect to securities or other investment property of the plan or IRA
The rule applies to all tax-advantaged accounts, including 401(k)s, traditional IRAs, Roth IRAs, SEP IRAs, and pension plans. However, it does not cover taxable accounts. Advisers, consultants, brokers and insurance agents will all be required to abide by this new rule.
The government is updating rules originally created in 1975, when IRAs were just being introduced and 401(k)s did not yet exist.
The new fiduciary rule, however, goes even further. Advisers must provide advice that is not only “suitable,” but that is in the best interest of the client. They are also required to provide a detailed breakdown of commissions and fees.
The rule is designed to keep consumers out of expensive investments that are not in the best interests of the plan. It is also designed to lead investors to ask more questions about investment performance and fees before making a purchase, allowing them to be better informed to make the best financial decisions.
Before making any investment, make sure you have a full understanding of the fees involved, and that your advisers are acting in your best interest – and not theirs.
As of now, the rule has been delayed until June 9th through an executive order by the Trump administration.
Dewang Sanjanwala is the Director of the Employee Benefit Plan Group at Wiss & Company, LLP. If you would like to speak with him about this topic, you may reach him at email@example.com or at 973.994.9400.