Good News: Obama’s New Retirement Rules Will Cost You More Money

Wise government would institute rules that protect people without causing pain to those being “protected”, nor would it go overboard in creating problems where they did not exist. Obviously, government has often done a poor job of this, none more than the Obama administration, which doesn’t seem to understand “restraint”

(Kiplinger) A controversial new rule issued by the U.S. Department of Labor aims to improve the quality of advice that investors receive regarding their retirement accounts. The rule requires that financial professionals who give advice on retirement accounts act as fiduciaries for their clients, meaning that they must put their clients’ best interests ahead of their own financial gain, disclosing their forms of compensation and any conflicts of interest. Here’s what you can

1. What’s behind this new rule? Today, brokers are generally not required to put their clients’ interests first when recommending investments. Rather, they merely need to suggest products that are “suitable” for their clients based on the clients’ goals, age, risk tolerance and so forth. By contrast, registered investment advisers, another class of financial professionals, are always required to put clients’ interests first, even though these advisers provide exactly the same services as brokers (whether someone is a broker or an adviser depends on how they are licensed and regulated). Because of that, it can be difficult for the average investor to glean whether a financial professional is offering objective advice with no financial interest or is acting more like a salesperson.

Now, is it a bad idea to put financial advisors on the hook in this manner? No. Of course, people right now have the option to use brokers whose model is to act as fiduciaries. A federal rule might be a step too far, but, it’s not necessarily one of those bad Big Government requirements. And, it will protect people’s retirement accounts from seriously bad advice.

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Of course, it could see people doing more paperwork. And then there’s this

As the saying goes, if you like your financial advisor, you should be able to keep your financial advisor. But that’s not the likely future for millions of families now that the Department of Labor (DOL) has finalized its proposed “fiduciary rule” – the Obama administration’s regulatory onslaught on retirement saving advice. Hiding behind the high-minded notion of a “fiduciary” standard that purports to put customers’ interests first is a regulation that is expensive and onerous, and not a favor to investors in the end.

Most, 86.2 percent, of the $7.3 trillion in retirement assets is in commission-based accounts. That means that instead of paying high fees directly to the adviser for his or her advice, the adviser is taking a smaller fee that is a portion of the gains in the account. When DOL’s fiduciary rule is enacted, each of those accounts – totaling $6.3 trillion – will be moved to a fee-based account. Even with a fee of just 1.2 percent that’s $75.6 billion in duplicative fees on American retirement accounts, or about $1500 per household. This cost is an unneeded tax on people saving for retirement who should not be forced into fee-based accounts that they don’t want.

So, it could cost those investing for retirement more money for less growth.

As it turns out, these may be the lucky “winners.” A majority (51 percent) of retirement accounts have balances less than $25,000, and, for small funds, it will simply make no sense to pay the fees. These retirement savers will be cut off entirely from retirement saving advice.

And it makes it more difficult to do things like roll over a 401(k) when one leaves a job.

The fiduciary rule is a mistake. At best it is a well-intentioned overreach in which the desire to improve the investment advice for a few means no advice for the masses. At worst, it is a classic case of burdensome, top-down regulation that ends up harming the very consumers that it is purported to help. In either event, it is a step in the wrong direction.

Just another case of Obama creating other problems while attempting to “solve” something.

Crossed at Pirate’s Cove. Follow me on Twitter @WilliamTeach.

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