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Retirement Advisors required to put Customers’ Interests First

Posted on: April 6th, 2016 by Mark R. Friedman

The federal government will issue a new rule holding financial professionals who manage retirement accounts to a fiduciary standard.

This means that advisers will have to put clients’ interests before their own.  For example, if there were a choice between two identical funds, and one had a higher fee for the client and higher commission for the broker, while the other offered a lower fee for the client and lower fee for the broker, the adviser would have to recommend the lower-cost fund.

The New York Times quotes Department of Labor secretary Thomas E. Perez saying:  “The marketing material I see from many firms is, ‘We put our customers first.’  That is no longer a marketing slogan.  It’s the law.”

This rule will have a big impact on the $14 trillion Americans have invested in retirement accounts.  The government expects the rule will save Americans $17 billion per year in fees, and analysts expect to see a shift in retirement accounts to lower-cost investments.

Also expected is upheaval in the financial services industry.  The new rule is expected to make operating more difficult for smaller advisory firms, because of new reporting requirements that will require more overhead costs.  There is also some confusion on whether the fiduciary standard will apply before a client invests with a firm – e.g., in an initial meeting.

Despite these issues, I think this is a positive development both for financial advisers and for their clients.  Millions of Americans have the bulk of their savings invested in their retirement accounts.  Many of these folks have no idea how their money is invested and rely on their advisers for guidance.  The best advisers already put their clients’ interests before their own, and with this new rule, the rest of the industry will have to follow suit.

As a segue into what we do… a lot of retirement accounts pass outside a will, directly to designated beneficiaries.  It’s important to make sure that your retirement account is invested wisely, and that it’s coordinated with the rest of your estate plan.  For guidance on estate planning and retirement account, call or email FriedmanLaw today.

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