Tahoe-Truckee Market Beat: The Fiduciary Rule has been rescinded
The Fiduciary Rule was passed by the Obama administration and was supposed to take effect on April 10th of this year.
On February 3rd, President Trump signed a memorandum requesting the secretary of labor to stop the new rule from taking effect. The current nominee for labor secretary is Andrew Puzder. We’ll have to wait and see if he gets approved.
The new rule would have required anyone giving advice on qualified retirement accounts like IRAs and 401ks to be held to a fiduciary standard instead of a suitability standard.
A fiduciary must always act in a clients best interest. Currently registered investment advisors are held to the fiduciary standard, but brokers are held to the suitability standard, which means that investments that are recommended must only be suitable for the client not necessarily in their best interest.
For example, one mutual fund might pay the advisor a higher commission than another and the broker is free to suggest the fund that pays him the best commission.
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The White House studied the effects of commissions and termed them “conflicted advice,” their study concluded that conflicted advice cost consumers about $17 billion per year. The study used to be available at the White House’s website, but not anymore, it has been taken down.
Since this rule is not going to take effect this year, the best way for investors to protect themselves is through education. If you have mutual funds or annuities read the prospectus and find out what the expenses are. A difference of one half of one percent may not sound like much, but can make a big difference over a long period of time.
For example, a twenty-five year old who saves $5,000 per year for forty years, until age sixty-five would have over $150,000 more at retirement age by earning 8% per year compared to 7.5%.
A relatively small difference in return can help build your retirement accounts over the long haul. Find out how much you’re paying in expenses, how your advisers get compensated and determine what kind of service you’re getting for those fees.
Investors should expect some policy changes in the next few years that could have an impact on the markets.
We’ll probably see changes in tax laws and an incentive for companies to repatriate foreign funds. I was hoping the fiduciary rule would be implemented this year, but now we’ll have to wait and see what the new proposal will be.
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.
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