Some good news! If Artemis manages your retirement account, the new DOL rule has no impact on you because we are already a fiduciary and put your interests above our own. And we do so for all of your assets, not just your retirement accounts! Hurrah.
What am I talking about? Yesterday the Department of Labor announced the final version of a new fiduciary rule, which obligates all advisors to adhere to a fiduciary standard for advice delivered on retirement accounts. This means that advisors must avoid conflicts of interest and pledge to act in the best interest of their clients when providing investment guidance on IRAs, 401k and other retirement plans. Believe it or not, currently it is legal for many advisors to recommend a product for which he/she is paid a higher commission than another product so long as that product is “suitable” for the client. This is not exactly in your best interest.
The sad part about this new rule is that we actually need one at all. Shouldn’t all financial advisors always put their client’s interests first? The answer is clearly yes, but the big brokerage firms have been fighting against having to operate as fiduciaries for a long, long time.
But we have to take our successes where we can find them and this new rule is a good thing. Here’s why:
1. Lower investment costs – According to Obama’s Council of Economic Advisors, higher costs and lower returns cost American investors $17 billion per year. The new rule will make it much harder for advisors to recommend annuities in IRA accounts with high internal costs and long surrender charges. It will also be harder to recommend proprietary mutual funds with hefty ongoing kickbacks to the advisor (called “trailers” in the industry) and high expense ratios.
2. More transparency – Look to see many advisors moving away from commissions and hidden charges to offering fee-based accounts. The price may not be lower for all but at least you will now know what you are paying.
3. More legal protection – Unlike the suitability standard, the fiduciary standard is a full legal standard and therefore investors will have greater recourse to recover their money if something goes wrong.
4. Fewer commission-based accounts – The rule does allow brokers to continue to accept commissions. But to do so, they must ask clients to sign a “best interest contract” that requires the advisor to act in the investor’s best interest and includes information about the firm’s conflicts of interest.
5. More brokers acting as fiduciaries – I find it hard to believe that advisors are going to be able to get away with acting as a fiduciary for retirement accounts but not for their customers’ non-retirement accounts. What customer is going to say it’s okay to not always act in their best interest?
Finally, just remember that any advisor who is registered with the SEC and /or State Securities regulators is already a fiduciary so it shouldn’t be hard to know who is truly and always working in your best interest.