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The New Fiduciary Rule And You, The Investor



The Labor Department’s freshly minted fiduciary rule is big news in the financial industry, but what do the changes mean to you as an investor? Local experts have a lot to say about the new guideline, which will require all retirement advisors to put their client’s needs ahead of their own.

Why Was The Fiduciary Rule Passed?

“Loopholes in the current rules allow investment advisors to recommend products that put their profits ahead of the clients’ best interests,” says David Port, head of Trust Administration at Naples Trust Co.

“The industry has a long track record of putting itself first, and it’s been the Wild West [for investors],” says Tim Vick, senior portfolio manager at Naples Trust Co. “Advisors have been able to put into accounts whatever they feel is best for their firm. This change is a necessary first step to curtail that practice. It’s going to enhance the returns for millions of retirees.”

Is Your Advisor Already A Fiduciary?

“Trust companies are [already] acting fiduciaries and are required to be good stewards of their clients’ money, especially in retirement funds,” says Carol Boyd, president of Naples Trust Co. “The requirements of the new regulation are simply the way we have always conducted business at our firm.”

But many brokers, insurance agents and financial advisors have not been required to meet this tough standard under the existing rules.

How Will The Fiduciary Standard Be Enforced?

Fiduciaries are audited regularly and tend to shy away from creating in-house products that might cause a conflict of interest, but Dana Hushak of Iberia Wealth Advisors explains that the most powerful incentive to obey the new law will be the fear of lawsuits. “Attorneys will be on the sidelines licking their chops and waiting for things to go wrong.”

What Are My Total Fees Now?

The best question to ask your advisor is “What are the total fees that I’m paying?”

Vick cautions investors to ask not only about the basic management fee that the firm charges, but also the fees for each individual mutual fund or instrument. “This information will go a long way toward opening the door so you can see where some of their conflicts might be.”

What Questions Has My Advisor Asked Me?

Hushak says that “an advisor should start with a discussion about investors: How old they are, what their goals are, what their cash flow needs are. Is this the sole source of retirement income, or one of three or four sources? I can’t manage an account without knowing this. Most people have a combination of resources. You have to manage all those buckets.”

Your non-retirement accounts will not be bound by the new standard. You’ll need to continue to ask questions about fees, commissions, and incentives and refuse financial advice that doesn’t suit your needs for those accounts.

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