How might the Department of Labor ruling impact you as an investor?

Many investors do not know that there was a recent Department of Labor ruling that will make all financial advisors fiduciaries. You may think to yourself, shouldn’t all financial advisors already be fiduciaries? Well on June 9th, 2017, with no further delay, it will be official. Even though on the high level this is a good rule, because the advisor must put your interests before their own as a fiduciary, on a deeper level, it may hurt you. It all depends on who you already have been working with and what their style is. Here are some things that the rule may impact you.

What do the fee’s look like?

A lot of Investment firms are going to increase fees because now they have more liability. It also could be that the firm is used to charging commissions instead of fees, so now they have to roll you into a fee-based solution instead so that there isn’t any influence on a sale of a product. This may be just fine as long as you are getting value out of it.

What are your options?

My belief behind the intent of the rule was to make sure you were offered the best thing out there, not just what was suitable for you. The consequence to the rule is that most investment firms are being even more careful as to who they approve to be on the product shelf due to more liability which actually will be reducing your investment options. Limiting your options may not be the best thing for you.

Your investment firm will want to work with everything.

What we have seen is that if you have an outside account under their umbrella, they will want you to move it entirely underneath them. They want to make sure that if they are giving any advice for that particular asset that it will then be under their umbrella. One for compliance reasons, and two, to collect a fee.

Do you have enough for them to keep you as a client?

We have already seen a small impact where some firms are releasing you because you do not have enough invested with them so they don’t see you as a good investment vs. liability. Some firms won’t take you on as a client unless you have over $500,000 or more. Soon you could be limited on who you may be able to work with.

Will your advisor stick it out?

Due to the new ruling, it is actually making big waves in the industry. So much that a lot of financial advisors don’t want to make the change and are going to retire or quit rather than deal with the compliance and changes. Trying to teach an old dog new tricks when it comes from selling commissionable mutual funds to going fee-based can be a daunting and overwhelming task. Ask your advisor their time frame and what they think of the rule.

Even though the rule is a good thing, to help protect the consumers, you can see that there will be a lot of changes to not just the financial advisor and financial advisory firm, but also to you. For better or worse, some of these changes needed to happen. Now it is time to make sure you use the rule to your advantage.

Video Transcription

Hi, Vince Oldre, certified financial planner and welcome to the Department of Labor Fiduciary Rule. That is the new rule that just came in place where all financial planners are now going to have to be a fiduciary, where they have to now put your interests before their own. Now, you would think as a financial advisor, they would already have to put your interest before their own. But not until June 9th, is that going to be the case. Now, as a certified financial planner, I’ve always had to be a fiduciary to my clients and all certified financial planners were already fiduciaries. But now, all financial advisors will be a fiduciary. So, what will that mean to you? Now, generally, having a financial advisor that’s a fiduciary where they’re looking out for your best interests, would be a good thing and it is. It really is a good thing, but there are some things that will affect you as an investor or as someone who’s going to retire here soon or already in retirement. And one of those things, are the fees. Now, generally this rule was made so that the fees would be reduced and that is going to be generally the case where a lot these commissionable mutual funds are going to be kind of thing of the past. And some of these commissionable other products will kind of be a thing of the past as well because there’s a conflict of interest. But, what will happen for people that are already in a fee-based system, those fees could increase because there’s going to be a little bit more liability on the financial institution. And due to that, they’re going have to increase their fees because they have that more liability that they’re going to have to cover. The other thing that we see, is that a lot of these companies are going to have less options for you. The reason why is because if they’re going to take on that liability, they want to make sure whatever product that the financial advisor is going to give you, is going to be approved under their umbrella. Now, this rule was made so that whatever the financial advisor puts in front of you, meant that that’s the best thing that’s out there for you. And, this rule is kind of conflicting with what’s actually going on out there where these financial institutions aren’t actually approving all the products for the systems. And where the financial advisor is supposed to look at everything out there for you to make sure they put what is best for you in front of you. So, what are we are seeing is that the options are becoming less. The other thing that can be a little bit hard for us to understand is that the financial institution wants to collect all your assets or they want to be able to manage all your assets. And the reason for that is because if they’re going to have liability over here, they don’t want the liability for some other firm that your financial advisor might be helping you out with. And that’s why they want to make sure that all the assets are under one umbrella instead of assets held away where your financial advisor might be giving you advice on those things that held away. So, they really want to bring all those assets together. So, they’re either going to say, you need to bring everything in to us, or you can leave us.  Another thing that we’re seeing is that a lot of these financial institutions are requiring a minimum that you have to have to stay with them or they won’t give you much advice and because of that you may not have enough assets to work with a financial advisor. Now, I will say that there are still going to be a lot of financial advisors out there, that are going to be willing to work with you anyway. So, don’t worry about whether or not you’re going to be able to get advice, just some firms aren’t going to take you on as a client versus others. Because they want to make sure that they’re able to cover that liability based on how much assets you’re bringing to the table.  Now, the last one that I have here, is will your advisor stick it out? Meaning, will your advisor change his ways to make sure that he’s going to put what is best for you in front of you. So, a lot of these advisors that are used to selling the commissionable mutual funds or they’re used to selling a proprietary product is going to make a big difference for them for, when it comes to the fiduciary rule. Because now, they’re going to have put all these new products in front of you and they’re going to have to learn new products. And because the population, the type of financial advisors are mostly a little bit older, they’re now starting to think, well, why stick it out? Maybe I should just retire and that is something that we’re seeing right now is a lot financial advisors are retiring instead of actually going through this fiduciary rule.  So, it will be interesting to see what happen as this fiduciary rule comes about. I think it’s going to be a good rule for you as an investor and a person that’s in or near retirement but it will shake things up in our industry. What I will say is that we will see a lot of people leaving the industry because of it but it will also bring things into our industry to make sure that financial advisors are looking out for your best interests. As always, if you have any questions, please feel free to give me call or email me. I’m more than happy to answer some questions and I like to make videos out of them as well. And as always, if you want to come to one our events, you’re more than welcome to do so. Just go to our events page and make sure to sign up there. Thank you for watching, we’ll see you next time.

How might the Department of Labor ruling impact you as an investor?
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