Wednesday was a fantastic day for investors – the federal government posted new rules that will close a loophole in investment advice.
Right now, if you get advice from a stockbroker or insurance agent, you will get advice that is “suitable” to you. While suitable sounds great, it does not mean you will get the best advice. The suitability standard means a broker is allowed to steer you to products that make him the most money, as opposed to those that will protect your funds.
A higher standard is call a fiduciary standard, and is one that Registered Investment Advisors, like GoldBean, have always been bound by: Our recommendations are always the ones that are most appropriate to you. The new rules apply this fiduciary standard to stockbrokers and insurance agents.
The new rules won’t go into effect until April 2017, but we want to make sure you know about the changes so if you have money managed by a stock broker or insurance agent, you know how these changes will impact you.
- The new rules apply only to retirement money. So all money in an IRA or 401k will be bound by the new rule. But the rule does not apply to money in a traditional trading account. So watch out for brokers who resist moving money into retirement accounts!
- The rules only apply to new money. Brokers are not specifically obliged to reevaluate existing investments in retirement accounts. Make sure you ask them to reevaluate your existing portfolio under the new rules.
- If you hold a lot of mutual funds with high fees, ask your broker to justify why they are better than similar Exchange Traded Funds with low fees. There are a lot of fee savings investors can take advantage of by switching to ETFs.
- Brokers are still not obliged to offer a competitor’s products, even if they have lower fees. So even though their advice may be appropriate for you, it may not be the cheapest available. So shop around for the cheapest products.
- Brokers and insurance agents must disclose all fees and conflicts of interest in writing. And clients have to sign a contract. It is a great idea to read those contracts and disclosures. They may be boring, but all relevant information will be there. You may be surprised about how your broker is paid.
- There is an “education” exemption for this rule. If advisors give “general education” on retirement saving, they are not bound by the fiduciary rule. So make sure your broker is not abusing this loophole. Any specific advice, recommendation or suggestion of a course of action must be bound by the fiduciary rule.
- Enjoy the savings! An estimated $40 billion of investor money will be saved by this new rule. Terrific news for investors!
At GoldBean, we are thrilled the investment industry will now have to operate with your best interests in mind. Frankly, it’s about time that it happened. Our goal at GoldBean is to empower you to make educated decisions, and to know the fundamentals of investing. It’s great to see the industry starting to catch up!