On April 6th, the Employee Benefits Security Administration (EBSA) of the Department of Labor (DOL) stepped in to do its part to ensure retirement savers get investment advice to help them. The Department issued its final, long awaited regulations regarding fiduciaries of retirement plans. Since many financial services companies will be forced to change their practices to meet the requirements, the Agency has made the rules applicable as of April 10, 2017. Two parts of this are a big deal.
The first concerns the definition of fiduciary. The last regulations, dating back to 1975, did not include a registered representative of a broker/dealer or an insurance agent. Now the new rule specifies anyone who gives advice to a retirement plan or IRA or an owner, beneficiary, or participant and receives either a fee or any compensation of any kind.
The sales representative formerly could offer to sell you a stock, bond, mutual fund, CD, or an annuity for your IRA. He or she had only a duty to make sure the investment was suitable for you and your situation. Sort of a Do No Harm standard.
Now each one must abide by a strict fiduciary standard. That is the duty of taking affirmative care for the benefit of the client or customer with an undivided loyalty and avoiding any conflicts of interest along the way.
The second notable part is the Best Interest Contract Exemption (BICE). In somewhat of a nod towards the big pocketed financial companies, the DOL provided a way for existing conflicted business models to continue while also trying to preserve duties of care under ERISA’s prudence standard. One aim of this is to move the conflict of interest disclosure from the fine print to a more in your face disclosure.
What does this mean to you? It probably means more paperwork for you. Take the time to read it or have the person giving you advice explain it and why the transaction is best for your retirement future. Further, the best way to ensure your own retirement future will always be saving enough.
(Advice is intended to be general in nature. For more on the rule, see: http://1.usa.gov/1X7gu7N.)
Greg Finke, CFP® is an Accredited Investment Fiduciary® Designee and Vice President with Stewardship Capital in Independence, Missouri. You can reach him at firstname.lastname@example.org.