The good guys are you. This win comes courtesy of the US Department of Labor (DOL) who made it official last week. Anyone advising individuals on their retirement accounts must “act like a fiduciary.” What does that mean? Fiduciary is the highest standard in investment management. It means you must put the interests of the person you represent first in all situations. Sounds obvious, but it hasn’t been. We’ve embraced the fiduciary standard since Day One of Osbon Capital in 2005. Many firms can operate without it. This DOL ruling is a big step forward. Here’s why.
What does it really mean?
The new DOL rule (BIFS – Best Interest Fiduciary Standard) means the end of commissions on product sales to retirement account holders. It means the end of “the juice,” “the rake,” and “the trailer”. It means the end of other performance sucking commissions, kickbacks and rebates. The rule eliminates fees that enrich sponsors, underwriters, brokers, salesmen, and representatives at your expense. The new DOL rule means that product salespeople are going to make a lot less money, maybe none. So will the firms that support them.
Like 1974 all over again but better
We’ve seen this movie before. A similar event happened to individuals and their pensions in 1974 when ERISA was enacted (the Employee Retirement Income Security Act). ERISA cleared the pension investment sales swamp, infested as it was with too many criminals. It worked. Fast forward 42 years and now most people don’t have pensions, but they do have 401k’s. The pension used to invest for you. Now you have to do it yourself. When you do so, you get legal protection from the DOL against any non-fiduciary behavior by plan suppliers.
Unprotected no more
If you feel you somehow weren’t getting the whole story about your 401k choices – why they were there, what they could do for you, and so on – you don’t have to worry anymore. With a fiduciary standard, you can be assured your investment options and investment advice is dispassionate, disinterested and conflict-free. Well, almost. Give it a year or two and your plan will be there. If it doesn’t turn out that way for you, you now have legal recourse against the provider.
Keep in mind that the fiduciary rule applies to 401k rollovers too. When you leave your job you might roll the account over into an IRA. Brokers handling these rollovers will no longer be able to recommend investments with unreasonable fees or commissions. They must put your interests above their own compensation.
What do I choose?
You still have to make investment decisions. The new rules do not absolve you of that. If you don’t have reliable investment advice for your 401k, talk to your investment advisor. Or talk to us. We can help, or connect you to those who can. In any case, you win.
Just for fun:
The DOL rules have brought out the best in independent commentary. Two favorites are: the unstoppable Matt Levine or the 9 Seinfeld GIFs help explain the “Fiduciary Rule”.
John Osbon – email@example.com