The Dept. of Labor's Fiduciary Rule - Why Should You Care?

This Friday, June 9th, the Department of Labor’s Fiduciary Rule will go into effect.  Since its proposal, initial adoption, and the subsequent election of President Trump, the rule’s viability, implementation, and ultimate fate have been in question.  However two weeks ago Labor Secretary Acosta announced there would be no further delay to the long awaited, controversial rule; and on June 9th it would take effect.  However, there is an important caveat the investing public needs to be aware of: the full enforcement of the rule won’t go into effect until January 2018. Both Secretary Acosta, in a recent Wall Street Journal Op-Ed, and President Trump, in an Executive Memorandum earlier this year, indicated this is far from a “done deal.” In other words, there are questions about enforcement and many details of the rule.  It’s conceivable this rule could make things worse by adding to public confusion, making it difficult to see who is working in whose best interest and under what conditions the rules apply.  Worse case, more complexity is added to enforcement of the rule.  Best case, the rule will be implemented and enforced with the true spirit of the rule, which is to protect retirement assets from conflicted, misleading advice.   Because this is a complex issue, one that effects the lives of people we care about, and because we’ve received questions from several of you about this topic, our team crafted this article to provide you information so you’ll be updated and can share the information with those you care about. 

In our opinion, there is no controversy....Financial Advisors should adhere to the Fiduciary Standard at all times for any account type.  Period. 

So.....what’s in the rule?

The heart of the rule is the Impartial Conduct Standards which requires that those giving investment advice to retirement investors must give advice that is in the best interest of their client for reasonable compensation, and make no (materially) misleading statements.  It’s important to note that the Fiduciary Rule only applies to retirement accounts, such as individual retirement (IRA) and 401(k) accounts.  It does not apply to after-tax accounts such as brokerage accounts. This is an important distinction and one that attention should be called to because it can lead to confusion (when does the rule apply?) for those not working with a CFP® practitioner who is fee-only and/or fee-only financial advisor.

Why does it matter?

Studies have shown that the vast majority of the investing public believes rules like the Fiduciary Rule are already in place for all Financial Advisors and that essentially all Financial Advisors adhere to this higher standard.  Unfortunately, this is far from true.  In fact, the White House under President Barack Obama estimated that Americans lose $17 billion a year to conflicts of interest among Financial "Advisers". Further, a recent MSN article suggests you’d be forgiven for assuming Financial Advisors are similar to doctors, ethically required to do no harm, or an attorney, ethically required to protect your interest.  What the article doesn't reveal is that some Financial Advisors voluntarily adopt the fiduciary oath, you’ll know them as CFP® practitioners and/or fee-only advisors (Fee-only advisors that work for Registered Investment Advisory firms are legally bound to give you advice that is in your best interest).  If you are a client of ours you likely are well aware of this nuance, and it may be on of the reasons you work with us. 

What does this rule mean for me?

If you are already a client of Lake Tahoe Wealth Management, then this rule doesn’t mean much for you as we already work in your best interest and adhere to this higher standard......always.  However, if you have friends or family who are not working with a CFP® practitioner who is fee-only or who you think would benefit from working with us, please introduce them to your LTWM advisor today.  If you have any questions we are always delighted to hear from you.

The Lake Tahoe Wealth Management Insider, - Market and Economic Commentary Q2 2017

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