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DOL fiduciary standard rule - opinions from investors/advisors?
Posted on 2/19/16 at 9:12 am
Posted on 2/19/16 at 9:12 am
In case any of you are unaware, the Department of Labor is coming down with rule changes that are going to drastically change the qualified/retirement money management forever.
This won't have much of an impact on self-directed accounts you keep at Vanguard, but there will be little incentive for an advisor to do anything other than fee-based accounts with regards to qualified money going forward.
That may not matter to the MB audience, but your mom and pop who want no market risk on their IRA are going to be in trouble in this rate environment. The way I understand it, even something as straight forward as a fixed annuity is going to be impossible under the current proposals.
Just wanted to see if any investors or advisors have been paying attention and have any opinions one way are the other. Personally, I don't really understand how this helpa the general public. The people who would use a fee-based account in the future are doing it already, so this doesn't help them. Instead, it seems to place a road block between the average investor and professional advice. The potential impact it will have on compensation is one thing, but the legal burdens it will place on advisors are going to be insane.
Let me be clear, I'm all about something that is in the best interest of the public, but I fail to see where this will truly help the "middle class." if you lower the compensation for advisors AND significantly increase their regulatory burden and legal risk, you're going to see many people get out of the business IMO. I see the pros and cons, but I think the cons outweigh the pros in the current proposal.
This won't have much of an impact on self-directed accounts you keep at Vanguard, but there will be little incentive for an advisor to do anything other than fee-based accounts with regards to qualified money going forward.
That may not matter to the MB audience, but your mom and pop who want no market risk on their IRA are going to be in trouble in this rate environment. The way I understand it, even something as straight forward as a fixed annuity is going to be impossible under the current proposals.
Just wanted to see if any investors or advisors have been paying attention and have any opinions one way are the other. Personally, I don't really understand how this helpa the general public. The people who would use a fee-based account in the future are doing it already, so this doesn't help them. Instead, it seems to place a road block between the average investor and professional advice. The potential impact it will have on compensation is one thing, but the legal burdens it will place on advisors are going to be insane.
Let me be clear, I'm all about something that is in the best interest of the public, but I fail to see where this will truly help the "middle class." if you lower the compensation for advisors AND significantly increase their regulatory burden and legal risk, you're going to see many people get out of the business IMO. I see the pros and cons, but I think the cons outweigh the pros in the current proposal.
1
Posted on 2/19/16 at 9:29 am to slackster
The rule is much more about qualified plans (401k, profit sharing, etc) than accounts (IRA).
It is going to impose fiduciary standards on the advisors selling qualified plans. It will essentially force them to go the fee route and align their decisions and recommendations with the interests of plan participants. Currently an advisor can sell a 401(k) and place investments and mutual fund share classes in it that pay him the most commissions with little attention to the quality of investments. If the proposed rule goes through then the advisor would not be conflicted in his recommendations because he cannot receive those commissions. Advisors would be forced to make fund choices that are in the best interests of plan participants not ones that just pass a weak suitability rule.
Compensation doesn't have to go down for the advisor. In fact, it can go up due to the increased fiduciary liability the advisor is taking on. The compensation just needs to be in the form of a fully disclosed fee instead of a commission.
Ultimately, the plan participants benefit because the quality of investments in their retirement plans goes up and the more expensive share classes or those with back-end penalties are removed.
It is going to impose fiduciary standards on the advisors selling qualified plans. It will essentially force them to go the fee route and align their decisions and recommendations with the interests of plan participants. Currently an advisor can sell a 401(k) and place investments and mutual fund share classes in it that pay him the most commissions with little attention to the quality of investments. If the proposed rule goes through then the advisor would not be conflicted in his recommendations because he cannot receive those commissions. Advisors would be forced to make fund choices that are in the best interests of plan participants not ones that just pass a weak suitability rule.
Compensation doesn't have to go down for the advisor. In fact, it can go up due to the increased fiduciary liability the advisor is taking on. The compensation just needs to be in the form of a fully disclosed fee instead of a commission.
Ultimately, the plan participants benefit because the quality of investments in their retirement plans goes up and the more expensive share classes or those with back-end penalties are removed.
Posted on 2/19/16 at 9:55 am to Maderan
I don't so much mind the fee based only rule but you are hurting the small investor with this because firms will likely implement minimums now.
For the record the government doesn't have a very successful score card when they get more involved in something like this. IMO it's a lot like obamacare where they're trying to lower the fee's for everyone when in actuality they're gonna be raising them.
For the record the government doesn't have a very successful score card when they get more involved in something like this. IMO it's a lot like obamacare where they're trying to lower the fee's for everyone when in actuality they're gonna be raising them.
Posted on 2/19/16 at 10:10 am to Shepherd88
quote:
but you are hurting the small investor with this because firms will likely implement minimums now.
Bingo
Posted on 2/19/16 at 10:31 am to Maderan
quote:
Ultimately, the plan participants benefit because the quality of investments in their retirement plans goes up and the more expensive share classes or those with back-end penalties are removed.
That is fair for medium to large business plans, but your rollover options when you retire are going to be dramatically changed.
It is a plus for investors as they accumulate, but for those nearing retirement or already retired, it is going to be difficult. I know it is frowned upon on this board, but you'd be surprised how many people roll accounts into bank IRA CDs looking for little to no risk. Considering where rates are now, that option is shittier than ever, so more attractive rates and options in the annuity space were filling those needs. This rule change will basically eliminate those options going forward.
A rollover will either be fee-based or a bank CD/money market account. I'm being a bit hyperbolic, but that is the just of it from a feasibility standpoint.
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