Tahoe-Truckee Market Beat: New retirement plan rules finalized
President Barack Obama said, “For Americans who are doing the hard work of saving for retirement, let’s make sure that they get a fair deal.”
Next year, in April of 2017, new rules regarding retirement plans will finally go into effect. The issue has been debated since 2009 and the DOL issued proposed rules in April 2015. The proposed rules have been discussed and debated and the new rules just got finalized.
Starting next year, financial advisers who give advice on retirement plans will be held to what’s known as the fiduciary standard. Under the old rule, advisers were held to a lesser standard known as the suitability standard.
Under the fiduciary standard, advisers must recommend investments that are in the client’s best interest.
When giving advice under the old suitability standard, recommended investments only had to be suitable for the investor. The White House has determined that conflicts of interest in retirement advice cost investors $17 billion per year. The whitehouse.gov website some excellent information on the new rule.
The new rule will cover IRAs (individual retirement accounts) in addition to ERISA covered plans like 401ks, 403bs and 457 deferred compensation plans. ERISA stands for the Employee Retirement Income Security Act of 1974, which covers employer sponsored retirement savings plans.
The new rule should ensure that retirement savers get advice that is in their best interest, not what gives the advisors the highest commission.
Advisers will still be allowed to collect commissions and revenue sharing arrangements for their compensation as long as the client’s interests are placed first. Fees and any conflicts of interest will have to be disclosed under what’s known as the BIC or best interest contract.
Retirement plans have been loaded with hidden fees for many years. Even a relatively small difference in fees like 1% or so can have a substantial impact on your long-term retirement savings.
The new rules will not only make the fees easier to understand, they’ll put the adviser on the same side of the table as the investor.
The Department of Labor website, dol.gov, also has information on the new rule. It clearly explains what constitutes advice and what does not and how the new rule will benefit retirement savers. This rule is an excellent step forward in an area of financial planning that is so critical to so many people.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.