In April 2016, the Department of Labor implemented a fed ruling that requires all financial advisors - specifically those who provide retirement plan advice - to be classified as fiduciaries. A fiduciary is someone who has the legal responsibility to put their clients’ interest of ahead of their own. Retirement plans that financial planners may advise on include 401(k)s, Roth IRA, Sep IRA, Traditional IRAs, 403-Bs, and 457s among others. The ruling will go into effect on April 10, 2017.
The fiduciary ruling is great news for you, the client. Why? Because this eliminates the conflict of interest that a financial advisor may have in providing advice. According to the U.S. Department of Labor, financial advisors selling their firms’ investment products are currently reaping a total of $17 billion in exorbitant fees annually.
Perhaps it seems like common sense that someone who is handling your assets should put your interests ahead of their own, but this was not necessarily the case prior to this ruling. For example, say you were a client for a large investment bank. Your financial advisor recommends a mortgage backed security to you as an investment for your IRA. However, the investment bank originated the pool of mortgages that made up this investment. By telling you to invest in this security, they profit from selling you a product that they own as well as receive an agent’s commission for the transaction - hence the conflict of interest.
Because of the new ruling, these brokers are now required to divulge conflicts of interest. They must disclose if the IRA rollover they are rolling your 401(k) plan into would be a more expensive plan and then justify the higher cost to you. If the advisor fails to complete that kind of analysis, the client may sue them.
Ask your financial planner if they are a fiduciary. TABER Asset Management is a fiduciary advisory firm and we provide many financial services tailored to your needs and interests. If you want to learn more about the fed ruling and its significance, check out John Oliver’s segment from Last Week Tonight. If you are interested in learning more about what services we provide, please call 515-557-1860 or email us at firstname.lastname@example.org.