Change is Afoot in the Financial Industry

You may have heard that change is afoot in the financial industry. As the regulatory environment changes, what needs to remains unchanged is your own commitment to helping you achieve your financial goals and dreams.

This is really a tidal wave of change in the financial industry; they have spent millions of dollars over the last few years in preparation of the new rules and changes.  The rules impact all Brokers and Advisors and impact how products are created and sold in the industry.

The Department of Labor (DOL) has issued new “conflict of interest” rules regarding retirement accounts. In general, the new DOL rules hold financial professionals to a fiduciary standard if they receive compensation for providing investment advice for certain types of retirement plans, IRAs, as well as several other tax-advantaged financial vehicles.

“Fiduciary” is a term for an individual who is legally obligated to act in the best interest of a client. In other words, financial professionals must put the customer’s interest first. To that end, the new rules are designed to eliminate potential conflicts of interest. Any financial professional who provides investment advice for a fee to certain types of employer-sponsored retirement plans, IRAs or other tax advantaged financial vehicles is a fiduciary and must provide advice in the interest of their customer.

The new regulations aim to provide additional protections to investors. While there will be some changes to how financial professionals make investment recommendations to customers, you can continue to get the help and advice you need to save, invest and help preserve your savings.

The major provisions of the rule take effect on June 9, 2017. Certain provisions related to disclosures, procedures, and processes take effect on January 1, 2018.

For most of us, this change also impacts your non-retirement assets as most Broker Dealers, the organization that works with and polices your broker or advisor, is making huge internal changes to all their processes, paperwork and procedures so will include all types of assets that you currently have under management.  Lots of new paperwork will be forwarded to you to review, sign, date and return.  You should review it carefully and discuss with your advisors to see how the changes impact you.

There are three really important pieces to the Fiduciary Standard.  Your Broker or Advisor must:

  • Act in the client’s best interest.
  • Avoid making misleading statements to you as a their client.
  • Receive no more than reasonable compensation and disclose what the compensation is.

As always, your best practices for working with your advisors and brokers need to be in place too:

  • Make sure you understand what you are signing; if not, ask questions and document the answers- this is really important…
  • Read the documents you are signing.
  • Keep a copy of the documents you are signing.  I keep all my signed documents in my own file-don’t depend on your advisor to do that for you.
  • Keep and organize your statements; the annual or quarterly statements that show all the transactions for the year. You can do this online or print real paper- just do it.
  • Keep updated prospectuses- this document discloses your legal rights and responsibilities.

In this new world of the Fiduciary Standard, the impact and expense to your Brokers and Advisors will be increasing but compensation is decreasing.  While you may not be sympathetic to that you have to agree that you want the best service for your dollars and that you are buying the highest expertise of your advisors.  You should have a clear picture what your fees are buying- how much of the advisors time is needed for reviews, updates, revisions and servicing your files and needs behind the scenes.  If advice is requested or provided then compensation for that should be expected just like any professional advisor.

You may feel that you have all this covered; why pay a Broker to do all this stuff? Remember that the companies that offer you investments cannot provide you any advice on any transactions…all that is up to you. Knowledge of how each fund works and interacts with other funds is a critical component; one that may not be available to a direct consumer.

Perhaps you want to work with a third party; like a Financial Coach.  This third party can walk with you through the process and depending on your Coach’s background and experience will be able to help you through the process and shorten your learning curve.