A recent ruling by the U.S. Department of Labor puts more responsibility on the financial services industry. This is good news for consumers with 401(k) plans and IRAs, and I am pleased to support this decision.
A fiduciary is charged with the duty to look out for their clients’ best interests above their own. This includes transparency, avoiding conflicts of interest and charging a reasonable fee. One aspect of the new ruling will require those who work with retirement plans and IRAs to disclose their fees, and services for those fees, up front.
Some in the financial industry have taken on the fiduciary role for many years. However, this is a game changer for many in the field. The new ruling will help prevent individuals from selling products that benefit them financially more than it does you as the investor. Those who have always been fiduciaries embrace the new ruling, and will continue to look out for the best interests of clients whether a law requires them to or not.
The new rules don’t go into effect until next year, but it is a step in the right direction for the industry. As a result, there should be more fee transparency, fewer conflicts of interest and clearer lines drawn between those firms that want to help their clients meet their retirement goals and those who just want to line their pockets.
Here are a few things you should know about your investment accounts:
Is your person or company you work with a fiduciary — or do they adhere to a fiduciary standard?
Be sure to understand the fees you pay and what they are for — fees can be called commissions, expenses, charges, etc.
Ask what their policy and procedure is for disclosure of conflicts of interest? How do they avoid them?
Paying an individual for their service on an account is appropriate. The new regulation requires full disclosure of the amount of the fee, which is a change for many in the industry. Additionally, the role of fiduciary includes a higher liability risk than many are accustomed to assuming in their account-management role.
These types of standards already exist in other professions, such as the Hippocratic Oath in medicine and the attorney-client privilege in the legal field. A universal standard of care benefits everyone in an industry, from the consumer to the provider, if embraced and understood properly.