You are going to be reading a lot about the Government’s new rules being imposed on Stockbrokers and Insurance Agents (Salesmen) who deal with company retirement plans and individual retirement accounts (IRAs). The Department of Labor has been concerned that the Salesmen are selling a lot of high priced investment and insurance vehicles to these plans and that the investment returns to individual participants are reduced due to the high costs. Under the old rules the Salesmen only needed to justify that an investment was “suitable,” not that it was the best investment for the client. This was a legal distinction that allowed the Salesmen to sell higher priced investments without being held accountable to the clients.
Under the new rule the Salesmen are allowed to have clients sign contracts that will allow them to continue to sell high priced investments (with sub-par returns) as long as they disclose to clients that they have inherent conflicts of interest (the Salesmen continue to put their own interest ahead of the client.)
The Government was under a great deal of pressure from the Salesmen to avoid a rule that would force them to put the interests of the client first in all circumstances. That would have made them just like the Fee-Only financial planners, those who don’t sell any products, and who by law must put the interests of their clients ahead of everything else. Those same Fee-Only financial professionals who have no horse in the race and only offer their professional advice instead of high-priced, proprietary products designed to make the Salesmen wealthy.
Beware the Salesmen with their “Fiduciary” contracts and disclosure forms of their various conflicts of interest (ways that they put their interest ahead of yours with your permission.) Better to seek out the advice of the Fee-Only financial professionals – a list of which can be found at www.NAPFA.org.
And what about your other investment accounts that are not IRAs? Well there is no change to the existing rules on those accounts. The Salesmen can continue on their merry way providing “suitable” high-priced, illiquid, sub-par return investments with all their inherent conflicts of interest. It may be some time before the Government wants to go up against the Salesmen again on those accounts. Let the investor beware and let us know if we can help in your search for true Fee-Only Fiduciary financial advice.