In the week ahead, investors will get the same protection for their retirement savings from an investment adviser as their health has from their doctor. The advice they receive needs to look out for their best interests. Even with the likely unintended consequences, this is a higher professional standard long overdue for the financial industrial complex.
The Department of Labor’s Fiduciary Rule has been delayed already, but now it is due to take effect on Friday. Until then, investment advisers for retirement accounts like 401(k)s, Individual Retirement Accounts only have to give suitable investment advice. For years, the financial advisery business has been able to get away with suggesting investment products like mutual funds that fit an investor’s financial goals, but may be more costly to the investor. Beginning on Friday, those financial advisers will be required to provide advice that is solely in the best interests of the investor.
Wait, does that mean advisers have been pushing investment ideas that enrich themselves through sales commissions and investment firms through management fees? Yes, it does.
But no longer under the Fiduciary Rule.
The Department of Labor estimates the rule will save retirement investors $40 billion over the next 10 years by avoiding advice that puts them into investments with higher fees.
Opponents, including those inside the Trump administration, argue that changing the standard will leave small investors out in the cold without access to professional financial investment services. They say advisers will drop small portfolios because they won’t be able to make any money since advisers wouldn’t be able to charge commissions. And since most Americans haven’t put much money aside for retirement, it’s not worth the advisers’ time to collect an annual fee based on a percentage of the portfolio value.
That consequence may happen. But it shouldn’t stop the Fiduciary Rule. It shouldn’t stop investors from knowing how fees impact their results nor should it stop them from better understanding how their adviser gets paid for their advice.
Financial journalist Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami. Follow him on Twitter @HudsonsView.