I’m ecstatic about a brand new rule coming out of the Department of Labor that will help the average retirement saver.
Although we’d have to be naïve to believe this rule will fix all of the holes in the retirement advisory industry, this is most definitely a big step in the right direction.
Here’s how the new $40 billion rule will benefit YOU as you plan and save for the retirement you’ve always wanted…
As we all know, the retirement system is broken – badly. And it all starts with retirement advisors who are much more interested in their own pockets than yours.
That’s why so many of them are happy to sell you money-grubbing products as part of your retirement plan, like overpriced junk bonds that will do hardly anything other than earn some cash for the seller.
So you can imagine my relief and excitement over the new Department of Labor rule that’s virtually 100% pro-investor.
According to this new rule, any adviser providing advice to investors or retirement plans must recommend the most cost-effective AND best-possible actions.
This is noted in the new rule by making all retirement advisers “fiduciaries,” which means they must put your interests first.
That’s why this rule could save individual investors around $40 billion over the next 10 years or so.
Here are the major aspects of the new Department of Labor rule:
1. The Fiduciary Rule
“Under DOL’s definition, any individual receiving compensation for providing advice that is individualized or specifically directed to a particular plan sponsor (e.g., an employer with a retirement plan), plan participant, or IRA owner for consideration in making a retirement investment decision is a fiduciary.”
As we mentioned before, this will close a number of loopholes that advisers have used to earn a quick buck at the expense of innocent savers and investors receiving poor advice.
2. Careful – Orders don’t constitute a fiduciary-necessitating action
Anytime a retirement or investment adviser is offering you advice, the fiduciary rule applies. However, if you simply call your broker up and order them to buy, sell, etc., that person is NOT giving you advice, which means he or she has no fiduciary responsibility to you at that point.
So advice equals fiduciary rule, while orders do not.
3. Commission-based vs. fee-based
Look for many brokers who’re trying to get around this new rule to switch to fee-based accounts. This means that instead of charging commission on every product, advisers may now charge a flat 1% along with underlying fees to put your money in a portfolio or managed fund.
This may lead to you paying more than is necessary, considering that you could build your own portfolio with .25% charging ETFs.
All in all, this is a good rule for the Average Joe. Just make sure that you understand what your adviser should be doing, and what your options are.
NOTE: You have the right to know how much any retirement or investment adviser stands to make from a sale, so always ask. Make sure your advisers are working for YOU.
