Fiduciary Snapshot: Retirement Savings in 401k’s are Under Attack

in Market Commentary by

In the first 100 days of the new administration, the government is already undergoing a massive transition, and it’s still up in the air as to what exactly will happen to the Department of Labor’s Fiduciary Rule.

The U.S. Department of Labor passed the Fiduciary Rule to be enacted beginning April 10, 2017. The rule requires all financial advisors and brokers to act in “the best interests” of their clients when it comes to retirement accounts, including 401k’s, individual retirement accounts, IRA rollovers and other retirement-qualified funds (the rule doesn’t affect non-retirement accounts). Experts believe that the rule will affect more than $3 trillion in retirement assets in the U.S. with the Department of Labor estimating the rule could lead to gains of $40 billion for those saving for retirement over the next 10 years.

[Log in to the Retirement Planner to assess your retirement readiness.]

Currently, many brokers – or “financial advisors” who are not fiduciaries – simply had to meet a “suitability standard,” meaning that they could conceivably steer clients into products that pay the advisor a higher commission, if that product is “suitable” for that client. (Few people notice, but your 401k plan may have unjustifiably high fees – sometimes as high as 2% or even higher.) Proprietary products, such as proprietary annuities, can still be sold under the rule if appropriate disclosures about the product or compensation are made.

Sounds like the fiduciary rule is a great thing, right? Who wouldn’t want this? Well, large banks and brokers and their lobbying groups in Washington DC have fought this rule tooth and nail. Why? Because they would have to give up some big fees – fees that can eat up 20%, 30% or even 40% of your retirement money.

[You can use our 401k fee analyzer to see how much you’re losing to fees.]

The fate of the rule has been contested since the election in November. Now that Trump is in the White House, some folks in the industry speculate that the rule will be repealed or delayed, while others deny the mere possibility to do either. Because Personal Capital is a Registered Investment Advisor (RIA), it is our obligation to follow the fiduciary standard to act in our customers’ best interest, and not serve our own bottom line first.

We have supported the Fiduciary Rule since its announcement as a way to benefit hundreds of thousands of investors’ futures, and we are keeping a close eye on what’s happening with the rule in light of a new administration. And there’s something you can do as well. Let’s tell the decision-makers in congress to stick to their guns and clean up this unfortunate mess. Tell them to save the “Fiduciary Rule.”

[Make an appointment with a Personal Capital advisor who will always have your best interest in mind]

Here’s the latest in what’s happening:

The Latest Buzz

  • MarketWatch asks “Is Trump a threat to the fiduciary rule?” Even if Trump is able to stop the rule from being implemented, which won’t be easy, the article points out that advisors are already adhering to the fiduciary standard (like Personal Capital) will have a competitive advantage in the marketplace. These advisors can “[strengthen] their argument that they act in their clients’ best interest with respect to retirement as well as taxable accounts,” which leaves others, like registered representatives and insurance agents, only able to claim the lower standard of giving “suitable advice” to their clients. Read More…
  • Investment News reports that there are two anticipated courses of action that are likely:

    1. The DOL will propose a delay to the rule, during which it would undergo a public notice and comment period, or

    2. The Trump administration could issue an order delaying the rule under an “interim rule” that doesn’t require public comment by showing “good cause” for a delay. Trump’s administration can argue that those industries impacted by the rule – in this case, brokers – would need more time to prepare for the rule. Read More…

  • According to the 401k Specialist, the White House Chief of Staff Reince Priebus issued a moratorium on new and pending regulations that impact all executive departments and agencies. Those regulations that haven’t been finalized yet will be withdrawn, whereas those that have been published but haven’t yet been effected will be delayed for 60 days to give the new administration time to review them. This moratorium also freezes the ability for agencies to issue any “guidance documents.” It’s still uncertain whether this impacts the DOL ruling, since the Fiduciary Rule became effective in June of 2016, although it will not actually take effect until April 10 of this year. Supporters say the moratorium should only impact the DOL issuing guidance documents, which comes in the form of FAQs the department announced it will issue. Two of the three FAQs have already been published. Read more…
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  1. Lora

    Under attack? In this article there was not even one instance of “attack”.
    In the article linked to this article you admit:
    “Because the Fiduciary Rule is already effective, absent Congressional action, the Administrative Procedures Act (APA) prohibits the DOL from delaying the rule indefinitely, and it would need to separately propose to withdraw the rule subject to notice and comment on the withdrawal and on possible replacement rules.”
    Congressional action! So where exactly is the attack? Seems like you just want to scare people. Real news, please.

  2. Ken

    We have a bunch of crooks running this Country.

  3. Ronald S Bogdasarian

    Trump said he loved the uneducated. Your comments emphasize the need for financial literacy, not an easy task for the vast majority of Americans, who, instead, relay on trusting their advisors. In the past how often has this led to well off asdvisors and bankrupt investors, exemplified by Bernie Madoff. How short the memories. How corrupt and self-serving much of the financial industry , new administration and parts of our long existing institutions. One can hope that integrity is recognized and prevails, but for now one must “trust but verify”.

  4. David

    Fiduciary rule will also increase regulatory and compliance costs and make it prohibitive to operate in the client’s best interest, especially for smaller accounts. Fee based management is not always the best solution, and this regulation isn’t about choice, but about making clients pay an annual fee when it may not be what they need.

  5. Done by Forty

    It’s troubling when a rule that simply requires a company to “act in the best interests” of its clients is being fought tooth and nail.

    Be careful out there, folks.


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