The Department of Labor’s fiduciary rule is now in effect. It stipulates that any financial adviser dealing with your retirement accounts must now put your interests ahead of any commissions or fees generated by selling a product and must fully disclose all such fees.
It’s a great idea, but Wall Street responded to the loss of commissions (and potential lawsuits for breach of fiduciary duty), by deciding to charge an annual “management fee” of 1 percent or more on individual accounts — on top of any fees charged by underlying mutual funds or annuity products.
In my last column, I explained how you could avoid the new management fees, or at least lower them, by either negotiating with your provider, by switching to very low-cost services offered by Fidelity and Vanguard, or by switching to a “robo adviser” like Betterment or Wealthfront. They offer initial asset allocation advice, but not a lot of hand-holding in rough market conditions.
What a good adviser offers
Many investors would rather have a personal relationship with a financial adviser, a personal touch. A good adviser should start with an in-depth consultation to understand your personal and family situation — your goals, your risk tolerance, your need for cash flow in retirement, your financial responsibilities to children or aging parents and so forth. Then here’s what their personalized service should offer:
—Asset allocation: picking the right mix of investment categories, such as categories of stocks (large company, small company, international, etc.), income-producing assets and cash reserves.
—Cost management: choosing cost-effective ways of implementing that asset allocation decision.
—Rebalancing at least annually, to make sure your strategy stays true.
—A withdrawal strategy: planning for retirement income, including advice on which assets should be drawn down first.
—Hand-holding: helping you through tough emotional times in the market, and in your life, to stick to the planned strategy and reach your goals.
Now that’s a value-added proposition that is well worth the fees you may pay. But should the fee be a percentage of your assets?
What should you pay
Sheryl Garrett is CEO of the national Garrett Planning Network of fee-only independent investment advisers. She has spoken out against the new “1 percent fee” announced by major brokerage firms. “First of all, most people don’t need continual and ongoing asset management services, so why pay for it?” she said. “Charging 1 percent or more for babysitting a portfolio of mutual funds or ETFs will no longer be acceptable once clients become aware of competitive choices.” Garrett’s advisers charge only hourly fees for comprehensive planning and investment services.
Finding a competent adviser
As a result of compliance with the new law, all representatives of financial services firms will now call themselves “fiduciaries” when dealing with IRA investments. (The law does not apply to non-IRA investments.) But no matter what their title, not all of these advisers are trained and certified in the services described above.
It is your job to choose the best, most helpful and most competent fiduciary to help with your retirement investments. So, how do you do that?
A certified financial planner (CFP) must pass extensive testing to earn this title. Many financial advisers work in broker groups, which have at least one CFP reviewing your overall plan, including insurance and estate tax issues. Or, search for a CFP at CFP-Board.org.
Financial planners who don’t charge commissions but are paid by hourly fees can be found at the National Association of Personal Financial Advisors website, NAPFA.org.
A great place to start your search for a trusted adviser is at CampaignforInvestors.org. This nonprofit site gives you information about the entire advisory process. It also has links to federal databases that reveal past disciplinary problems with brokers and financial salespeople.
This is your money, and your financial future at stake. It is worth paying for the best advice — and doing your homework to find it. That’s The Savage Truth.