A new rule just took effect to help protect you when you invest for your retirement. It’s called the “fiduciary rule” and it applies to anyone who gets paid to help you invest for your retirement.

  • Fiduciary rule a much-contested piece of legislation
  • Rule took effect June 9 after Trump administration review
  • Second phase to take effect January 2018
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“A fiduciary is a person who’s looking out for one thing and one thing only: the best interest of the client,” explained Sequoia Financial Group Executive Vice President Chris Redhead.

Hard to believe that wasn’t already a rule.

“They should be looking out for your benefit all the time, not just passing it now,” consumer Kiki Johnson laughed.

Fiduciary Loyalty

The fiduciary rule was actually a much contested piece of legislation created by the Department of Labor during the Obama administration. It was supposed to take effect April 10, but was delayed until June 9 to give the Trump administration time to review it. A second phase of the law is still under review and expected to take effect in January of 2018.

“It’s one of the best rules I have seen over the years,” Redhead said.

Redhead already was a fiduciary, but many brokers and agents who sell financial products were not.

“The loyalty, in some cases, has been to the advisor — ‘I can make more by putting you in this,’ and sometimes the firm pushes products or services that pay them a little bit more,” Redhead said, explaining possible conflicts.

In the past, non-fiduciaries only had to recommend something considered “suitable” for a client’s goals, age, risk tolerance, etc. — whether it was best for them or not.

“You had a lot of people taking 401K plans and moving money to IRAs and putting them into things such as annuities, which are high commission products; and non-tradable Real Estate Investment Trusts, which are high commission,” Redhead pointed out.

Loopholes

There are some loopholes in the new rule. Financial firms that sell only proprietary products which are their own brand are not required to recommend or even mention a competitor’s products, even if they have lower fees.

“That’s a big loophole. I hope that they close it," Redhead said. "It should be ‘the client comes first’ and ‘let’s do what’s right for the client.'"

This is not to say that brokers and agents don’t make money for clients, but it’s possible a different product might make you more than the product that makes the broker the most money.

“You should be asking ‘How are you getting paid?” and “Are you really and truly a fiduciary?” Redhead said.

Rule has limits

Also keep in mind, the new rule only applies to retirement products such as 401Ks and IRAs. So if you’re just saving in general or for your child’s education, the rule does not apply.

“I don’t think that’s fair, if you’re young and investing right now. You don’t get to see it until way later on,” consumer Karine Hill said. “It should affect everybody, not just your retirement funds.”

The best thing you can do whenever you’re investing is to educate yourself. Ask lots of questions. 

The first question should be — “How are you getting paid?” so you’re aware of any possible conflicts of interest.

“You have to be an advocate for yourself, for sure,” Kiki Johnson said. “I’m gonna be more careful and ask that question: ‘How do you make your money?”