The U.S. Department of Labor announced Oct. 31 a proposed rule to expand the scope of investment advice from a financial professional that would be considered a ‘Fiduciary’ under the Employee Retirement Income Security Act and Internal Revenue Code.
Aligned with the Biden-Harris administration’s efforts to help protect retirement investors, the proposal would require trusted investment advisers to adhere to high standards of care and loyalty when they make investment recommendations and avoid recommendations that favor their financial and other interests at the expense of retirement savers.
In this blog, we’ll explore this new rule, the role of a Fiduciary, and how working with one can help secure your financial future.
The Retirement Security Rule
One of the primary motivations behind the Retirement Security Rule is to close “loopholes” in existing regulations. Previously, some financial professionals could recommend investment products that paid them higher commissions, even if those products were not necessarily the best options for their clients. This created conflicts of interest that could result in individuals making less-than-optimal investment choices for retirement.
The Retirement Security Rule, proposed by the Department of Labor, is a significant step toward protecting clients’ retirement savings.
The Proposed Benefits to Retirees
The new rule is all about safeguarding retirees and helping to ensure their financial interests come first. It applies to financial professionals, like investment advisors, brokers, and insurance agents, who help with retirement-related decisions. Here’s how it works:
- Putting You First: The rule clarifies that these professionals must prioritize your financial well-being. When you seek advice regarding your retirement savings, Fiduciaries must recommend products and strategies that genuinely benefit you, not just what helps them earn more money.
- Closing the Gaps: Before this rule, some financial products, like commodities or certain insurance products, weren’t fully covered by the Fiduciary standard. Instead, individual states regulated advice related to these investments. The new rule aims to close these gaps, helping to ensure you receive the same level of protection regardless of the type of investment.
- Help With Employer-Sponsored Plans: The new rule will help cover advice to roll assets out of employer-sponsored plans such as 401(k)s. This advice impacts around 5 million people every year. In 2022 alone, Americans moved about $779 billion from their 401(k)s to IRAs. The rule can help ensure that this advice is in your best interest.
In a nutshell, this new rule can help close gaps in regulation and help ensure that your retirement choices align with your goals. It’s a significant step toward protecting retirees and helping them secure their financial future.
Working with a Fiduciary
The DOL proposal states financial advice must be “provided under circumstances indicating that the recommendation is based on the particular needs or individual circumstances of the retirement investor and may be relied upon by the retirement investor as a basis for investment decisions that are in the retirement investor’s best interest.” One of the key ways to help secure your retirement savings, which are protected under the Retirement Security Rule, is to work with a Fiduciary. A Fiduciary is a financial professional legally bound to act in your best interests. When you work with a Fiduciary, you can have confidence that the advice and recommendations they provide are designed to help you achieve your retirement goals.
Here are some advantages of working with a Fiduciary:
- Objectivity: Fiduciaries are legally obligated to put your interests first, which means they are less likely to recommend products or strategies that may benefit them more than you.
- Transparency: They must provide clear and transparent information about fees, commissions, and potential conflicts of interest. Fiduciaries can help you make more informed decisions about your retirement savings.
- Accountability: Fiduciaries can be held accountable for their actions and recommendations. If they fail to act in your best interests, you have legal recourse to seek remedies.
Working with Fiduciary advisors like the Johnson Wealth and Income Management team can help provide valuable guidance and support around your investment and asset preservation strategies. We aim to provide unbiased advice in harmony with your financial goals and needs, providing impartial advice whenever you need it most.
Fiduciary vs. Non-Fiduciaries
There are a few ways to quickly tell a Fiduciary from a non-Fiduciary financial advisor. Financial advisors who are Fiduciaries will want to know your history, including your family, investment history, hopes and future dreams. A non-Fiduciary could be more concerned with what they can sell you—and probably less concerned with your particular situation or needs.
Some ways to distinguish a Fiduciary vs. non-Fiduciary financial advisor include if your financial advisor is registered with the SEC or state securities regulators, they are required to act as Fiduciaries in at least some situations.
Fiduciaries also typically have long-standing relationships with several trusted and vetted industry partners such as estate planning attorneys and insurance brokers, who share their approach to acting in their clients’ best interests. A full-service Fiduciary should help with:
- Retirement planning
- Tax Options
- Investment Decisions
- Estate Planning
- Insurance Options
- Money Management
- Lifestyle Balance
When to Use a Fiduciary Advisor
We believe clients are almost always better off using a Fiduciary. In fact, there’s rarely a reason not to use a Fiduciary when preparing for retirement. However, you may not need a Fiduciary if you don’t want an advisor to manage your account on your behalf or even make recommendations. If you want an advisor to simply execute transactions or to buy insurance, there’s no need to use a Fiduciary.
Many reasons have been offered by those preferring not to operate according to a Fiduciary standard. Remember the main issue for investors, though; would you rather have an advisor guide you in a way that is solely in your best interest, or something less?
Even if you just want to help ensure that you get unbiased investment recommendations, then it’s a good idea to use a Fiduciary vs. a non-Fiduciary financial advisor. But how would an investor know if their advisors adhere to this fiduciary standard? Three criteria, provided by the Department of Labor, suggest that to demonstrate compliance, advisors and/or financial services firms should:
- State, in writing, that the firm commits to providing advice in the client’s best interest at all times
- State, in writing, that the firm has adopted policies and procedures designed to mitigate conflicts of interest
- Clearly and prominently disclose any conflicts of interest, like less-than-transparent fees or backdoor payments that might prevent, or provide a disincentive to, the advisor from providing advice in the client’s best interest
If your investment advisor ISN’T working with your best interests at heart, then how can you trust that they are making decisions that will benefit you in the long-term?
Full-Service Fiduciary Services from Johnson Wealth and Income Management
As Iowans, we long have prided ourselves in being middle Americans — working hard and enjoying a lifestyle of moderate measures. We are a full-service financial firm that provides an array of services to our clients in the state of Iowa. From tax planning to investment strategies, our commitment is to help you work towards achieving all your financial goals and to help provide you with a “worry free” retirement.
Instead of looking out across this state and being satisfied with how things are today, we look out and see tremendous financial opportunity and growth on the horizon. When you work with us, we don’t just ask about your financial situation. We want to know about your broader life circumstances, because we believe the more we learn about you, the more effectively we can help you with thoughtful financial advice for your unique situation.
Are you currently working with a non-Fiduciary investment advisor and looking for some guidance? You can trust that our advisors will always put your needs ahead of their own. It’s our legal obligation to you as fiduciaries, but it’s also simply the right thing to do.
Final Thoughts
The proposed Retirement Security Rule by the Department of Labor is a positive step towards enhancing the protection of retirement savers. By requiring financial professionals to prioritize their client’s best interests, this rule helps to ensure that individuals receive sound advice without conflicts of interest.
At Johnson Wealth & Income Management, our team of Fiduciaries has a commitment to excellence in everything we do. We consider it an honor and a privilege to help our clients work towards making sound investment decisions that will help contribute toward a more secure future. We provide impeccable client service to help reduce taxes and help protect assets by utilizing numerous investment products and strategies, so we can help protect our client’s lifestyle for a lifetime.
For more information on Fiduciary services in the state of Iowa, reach out to your trusted Iowa advisors at Johnson Wealth Income Management here today.
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