Fiduciary Rule Dies, Your Retirement at Risk

02/23/2017 12:37 am ET

The implementation of the Department of Labor’s fiduciary rule has been postponed from its April 10 scheduled start date. And if you’re an investor, that should scare you.

The fiduciary rule is simple. It says anyone selling investment products to people with money in retirement accounts must put the client’s interest first, and must fully disclose all costs, fees, commissions, rebates and benefits from selling the product.

Delaying the rule opens the door for high-pressure salespeople to peddle inappropriate and cost-heavy products that could devastate your retirement account as you roll that hard-earned money from a company plan into an IRA.

If you think that rule isn’t needed, just look at some of the many complaints and questions I’ve received from readers:

—“I took my money to the bank — an adviser inside the bank. Here’s what he put in my account. There was an annuity that tied my money up for 10 years, though I need to make withdrawals to live on. There were non-traded ‘private’ REITS that I now can’t sell!”

Savage says: It’s a broker, not a bank, selling inappropriate and costly stuff, so don’t be fooled by the location.

—“I attended an annuity seminar. (The salesman) promised much higher rates than I could get in a bank account. But he says I have to sign the annuity contract tomorrow or this high-rate deal will go away. What should I do?”

Savage says: Don’t rush into anything! And the push is a signal that this person is getting a big commission from this deal.

—“It was a ‘managed account’ and they would only charge 2 percent a year to manage it professionally. Is that too much?”

Savage says: Way too much, plus you’re likely paying commissions and management fees on the underlying products! Those costs can devastate your retirement plans.

Big Money at Stake

When the fiduciary rule was first proposed, the financial services industry was in an uproar. Suddenly, a lot of fat commissions and ongoing fees would be eliminated as people learned how much they were paying for these products.

In fact, a recent Mercer study quoted by Jack Bogle, founder of Vanguard, estimated Wall Street would lose $20 billion in fees and commissions in the next few years if the fiduciary rule were to go into effect, not to mention the cost of compliance.

Some major mutual fund and brokerage firms were ready to comply with the order. Vanguard, Fidelity and Schwab set up systems to comply with the fiduciary rule and are ready for its promised start in April.

And now the rule has been “delayed” for “review” as one of the first acts of the new administration. In other words, the fiduciary rule is effectively dead and buried.

Get Help You Can Trust

Yes, there definitely are responsible financial advisers and brokers out there who have always put their clients’ interest first. And there are some managed accounts and annuity products that are low cost and can be helpful in balancing your portfolio. But the odds are against you finding them.

With trillions of dollars now being rolled out of 401(k) plans as workers retire, there is a small army of salespeople ready to grab those large lump sums and rip you off with their investment recommendations.

Please, investigate before you invest. Go to www.CampaignforInvestors.org to learn what you should be asking a financial adviser before opening an account — and to check on the regulatory history of brokers and investment advisers. Ask if your “advisor” has signed the Fiduciary pledge to fully disclose all costs, and put your interests first.

You can hardly go wrong rolling over your retirement account to a low-cost firm like Fidelity, Vanguard or T. Rowe Price, where they will give you free advice about diversifying your retirement rollover account and provide the lowest-cost investments.

There is no free lunch. If you attend one of these “seminars,” the salespeople will be feasting on you. And that’s the Savage Truth!

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