A new rule for many financial advisers: The customer comes first

Financial advisors who offer investment advice to people for their IRAs, 401 (k) if other retirement accounts have new rules to follow from Friday that are intended to protect investors from advisors ’conflicts of interest.

The new Department of Labor regulation, known as the Trust Rule, requires brokers, investment advisors and other financial professionals to base their recommendations on actions such as transferring your 401 (k) to an IRA on what makes sense. financial for you, and not just because your advisor wants a commission to increase your income.

Given that the growing population of elderly workers with large balances in retirement plans sponsored by the employer approaching retirement, the DOL saw the need to protect workers when they retire and remove the its plan assets. The DOL is the primary regulator of employer-sponsored retirement plans, and now all service providers in those plans must act as trustees.

As of June 9, financial firms and their advisors offering investment advice on IRAs and other retirement plans must meet standards of fiduciary conduct that include:

• Give advice that is in the “best interest” of the retirement investor. Counseling must meet a standard of professional care as specified in the new law.

• Advice should be based on the interests of the client, rather than the competitive financial interest of the advisor or company.

• Advisors should charge only reasonable compensation and not make misleading statements about investments, compensation, and conflicts of interest.

To be clear, most financial advisors who plan to be in business for a long time care about their reputation and have always acted in the best interest of their clients. And while an advisor’s recommendation to transfer your 401 (k) to an IRA may be the best thing to do, before acting on it, your advisor should review with you the benefits and costs of plan of your employer.

Large business plans have powerful bargaining power over investment managers and service providers, and use their size to negotiate institutional prices for investment management at the lowest available costs.

For example, it is not uncommon for a large plan to offer an S&P 500 index fund with total annual investment expenses of less than 0.05 percent, compared to the average expenses of a similar retail index mutual fund that it can lead to commissions more than seven to 10 times. month.

There are good reasons to transfer retirement assets to an IRA. Some of them include more investment options, more flexible withdrawal functions, and access to ongoing investment management and advice. To make the best decision, it is critical to objectively compare the benefits and costs of an IRA with the benefits and costs of leaving your retirement assets in your former employer’s 401 (k) plan.

The DOL fiduciary rule will now require all advisors to do so when they give you this advice.

In:
• 401k