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Leveling the Playing Field for Retirement Investors

Investors were given a great reason to cheer on June 9, 2017. New rules formally took effect which will impact the way retirement-savers deal with the large, varied group of financial professionals who seek to provide them with financial services and products. With 10,000 Baby Boomers retiring daily for the next 15 years, this is big news.

Under these new rules, implemented by the U.S. Department of Labor (DOL), financial services professionals will now owe their clients and customers an obligation to act as fiduciaries when making recommendations as to tax-qualified accounts governed under the Employee Retirement Income Security Act (ERISA). For the vast majority of investors, think 401k's and IRA's. Under the DOL's rule, a fiduciary standard means that the financial services provider must act in the best interests of the investor to whom he or she is making investment recommendations.

Who are the financial services providers that fall under this rule? Employer Plan Sponsors, Financial Advisors, Financial Planners, Insurance Agents, Stockbrokers, etc., to name a few. In short, if you are an investor in either a 401k or IRA, you will now be dealing with someone who must act as a fiduciary. This is a huge departure from existing rules which allowed these financial professionals to recommend investments based only on the "suitability" of those investments for the needs of the investor. This lesser suitability standard is what allowed all types of financial services professionals to pitch all types of differing products and compensation arrangements to investors, from advisory-fees based on assets managed, to commissions earned on annuities and trading activity, to sales loads on mutual funds, to 12b-1 fees on so-called "no-load" mutual funds. The suitability standard is what allowed one advisor to recommend a fee-based, advisor-managed portfolio, while another advisor recommended a highly-commissioned variable annuity. At the end of the day, no financial services professional works for free. For many investors, however, just how their financial services professional was getting paid could be a complex mystery.

The DOL has tried to remedy this situation through the implementation of its fiduciary rule. The rule does not necessarily prevent financial services professionals from being compensated in differing ways. However, it does add a significant layer of transparency to the process. Thus, in cases where the advisor is not being compensated directly - and only - by the client, the advisor must disclose all of the other sources of revenue he or she may receive by having you enter the transaction. Thus, investors will have information about commissions, loads, 12b-1 fees, trading charges, and any other sources of revenue the advisor will get paid from product manufacturers, sponsors or distributors. And as one can guess, fees paid to advisors affect charges assessed to the consumer. Therefore, this conflict of interest disclosure will require the advisor to outline all of the charges that the investor will incur from the proposed transaction, together with a comparison of the investor's existing plan.

The DOL Fiduciary Rule places extraordinary power in the hands of retirement savers. Financial services professionals now have a very stringent obligation to put the interest of their clients first and foremost. Tannenbaum Scro offers our clients counsel on whether their existing financial services professionals are meeting this high level of trust, or whether a plan being recommended by your advisor complies with this standard. If you feel that your financial advisor is not acting in your best interests, we can help you recover losses and other fees and charges incurred as a result of an improper investment recommendations and trading activity. 

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