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  • DOL fiduciary rule

    Any thoughts on how this ruling may affect self managed 401k accounts with brokers such as TD and Vanguard etc?  When I read the TD site about pending change they seem to suggest not much will change except more options and tools which of course would be great.  Although I hear alternative interpretations suggesting the amount of personal control will actually decrease and if you don't have a professional managing you may be forced into choosing from a limited amount of more balanced fund(s) with associated administrative/management fees.

  • #2
    What is proposed is a change from a"suitability" standard to a fiduciary standard. A "suitability" standard is so loose as to be non-existant. All the salesman has to do to meet suitability standard is to ask leading questions like "do you worry about running out of money in retirement? If so, i have a variable universal life policy that might be suitable for you!" In contrast, a fiduciary standard requires that the product actually be in the interests of the client.

    The only changes DIY investors might see if this new standard goes into effect is that brokerage houses may cut back on service since they aren't able to shear the sheep anymore.

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    • #3




      What is proposed is a change from a”suitability” standard to a fiduciary standard. A “suitability” standard is so loose as to be non-existant. All the salesman has to do to meet suitability standard is to ask leading questions like “do you worry about running out of money in retirement? If so, i have a variable universal life policy that might be suitable for you!” In contrast, a fiduciary standard requires that the product actually be in the interests of the client.

      The only changes DIY investors might see if this new standard goes into effect is that brokerage houses may cut back on service since they aren’t able to shear the sheep anymore.
      Click to expand...


      Not really any way to know much at this point. The possibilities have been scrutinized in all of the financial media to the point that I ignore it. On top of that, Trump is supposedly not a fan and will change or suspend it, anyway - yet another possibility!

      You didn't ask about this, but do you realize that the fiduciary rule applies to retirement accounts only? Not to taxable accounts.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        The rule applies to investment advice not financial products.

        This rule is more targeted at brokers, advisors, planners, etc... Especially independent advisors/planners and companies like Edward Jones where there are significant commissions earned in the sale of products. With the inherent conflict of interest that their income is directly tied to which products they place clients in.

        So it should have less effect on those who are engaged buying, holding, and/or selling financial products directly from financial institutions. This will probably have some effect on receiving free portfolio advice. Fidelity offers their customers a yearly portfolio review. Their recommendations were useful for asset allocation purposes, but I never followed them, because the used active management funds instead of index funds. You kind of expect a company to try to sell you the products they make more money on. At least there is some case to be made for the active vs. passive approach.

        There may be some changes in bundled advisory services at major institutions. The marketplace was already moving in the right direction with low cost robo-advisors using low cost index funds or ETFs.

        I am as laissez-faire a capitalist as they come, but this rule was/is definitely needed. The real shame is not this rule, but the fact it was limited to retirement accounts. So even though I am for less regulation in general, sometimes you really do need the government to protect the people. So this is one regulation I hope stays.

        I can't begin to tell you how many times I have come across financial professionals churning elderly people in high front-load expensive funds and having them buy expensive inappropriate variable annuities and the even worse fixed index annuities.

         

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        • #5
          But that is what the advice is about - financial products. I totally agree something is needed, but I'm not confident this rule will actually protect the people who need the protection from the "bad guys". If it goes into effect as is, there is a good chance I'll be limited as to what I can post on this forum, and you can't get more fee-only than our firm. And that's just for starters. I've told my partner (who handles compliance) to quit the scare stories until we really know what the net effect will be. She's pretty freaked, though. We're definitely going to have to pay some significant money (at least to us) to outsource compliance.
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6
            And unfortunately, all of these "measures" to protect really usually end up costing us more $ or more time.  It creates compliance industries or necessitates having a compliance officer that siphon profits from small businesses and make it difficult for them to survive.

            But back to the topic, as others have noted, for DIYers you will not likely see changes in how you manage your account, but will likely see less "free" services.

             

            cd :O)
            Yet those who wait for the LORD Will gain new strength; They will mount up with wings like eagles, They will run and not get tired, They will walk and not become weary. -- Isaiah 40:31

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            • #7
              Obviously still many missing pieces, unknown whether it will even go into effect, etc but I'm not sure I understand why a fee-only advisory firm would need to worry much about compliance. As a physician, I have a fiduciary duty to my patients, but I don't spend any time or money documenting that I followed a fiduciary standard beyond my standard medical documentation. It seems more like a mechanism for clients to have legal grounds to go after unscrupulous salesman if they find out they've been given bad, conflicted advice. As long as you have some form of documentation of why you recommended ABC instead of XYZ fund, that should be enough. Again, still lots of fuzziness ahead.

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              • #8




                Obviously still many missing pieces, unknown whether it will even go into effect, etc but I’m not sure I understand why a fee-only advisory firm would need to worry much about compliance. As a physician, I have a fiduciary duty to my patients, but I don’t spend any time or money documenting that I followed a fiduciary standard beyond my standard medical documentation. It seems more like a mechanism for clients to have legal grounds to go after unscrupulous salesman if they find out they’ve been given bad, conflicted advice. As long as you have some form of documentation of why you recommended ABC instead of XYZ fund, that should be enough. Again, still lots of fuzziness ahead.
                Click to expand...


                Have you heard of the SEC and FINRA? I'm in probably the most heavily regulated industry that exists. Just because we say we're fee-only doesn't mean they check my firm off the list and move on to the scumbags. Being fee-only means we add another layer of reporting, the necessity to prove that we truly are fiduciaries. Any firm that is "registered" (and not all participants on this site are) has to submit an annual ADV, either at the state or national level. ADV's are picked over by regulators with a fine-toothed comb, at least in our state. Then to be able to serve clients in other states, we must register in those states and abide by their rules, too. Some are really tough, some not so much. And most states don't require separate registration until we have at least 5 clients there, which helps when the majority of your business is non-local.

                Compliance in the securities industry is night and day from the accounting industry. I was so spoiled when I only had a CPA firm. Compliance ate my lunch when I started doing wealth management in a separate firm. And, of course, we have our own version of malpractice insurance that costs several thousand $$ per year. Less than for doctors, but I've never been sued and almost certainly never will be.
                Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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