How Does The New DOL Fiduciary Rule Affect You?

What happens in the future concerning the DOL Fiduciary Rule could be life-changing for you and your family.

How the Fiduciary Rule Affects You by James Lange

This post is the sixth in a series about the Death of the Stretch IRA.  The five posts that precede this one spell out the details of the proposed legislation that will cost your family a lot of money, as well as some possible solutions to the problems that will be caused by the Death of the Stretch IRA legislation that you should consider now.  This post will discuss DOL fiduciary rule, and how it could affect your estate and retirement plans.

What are the current laws concerning the DOL Fiduciary Rule?

You might be surprised to learn that the current laws permit your insurance agent or financial advisor to recommend an investment that has higher fees for which they receive a sales commission than an alternative.  That’s right!  As long as the investment is deemed “appropriate” for your situation, it’s perfectly legal for your advisor to recommend that you buy something that might cost you thousands of dollars in fees, rather than a comparable but cheaper alternative.

President Obama wanted to level the playing field for investors.  He first proposed a common fiduciary rule in 2010, and the Department of Labor released new guidelines in April of 2016 that gave financial services companies a year to comply with them.  The new rule was scheduled to take effect next month, but President Trump has asked the Department of Labor to review it and potentially rescind it.

How would the DOL Fiduciary Rule affect you?

How would the DOL fiduciary rule affect you?  To give you an example, suppose that you inherited $1 million that you wanted to invest.  One advisor might tell you that an annuity is the way that you should go, another might recommend mutual funds, and yet another might recommend individual stocks.  If there is no fiduciary rule to guide you, who should you believe?   The advisor who seems the nicest?

If the DOL fiduciary rule was in place, the advisor who recommended the annuity would be required to tell you up front that he would make as much $100,000 from your $1 million purchase.  And while he might have valid reasons for saying that an annuity is the best option for you, he’ll have to be able to prove why the benefit to you is greater than the $100,000 payday he’ll realize from your purchase.  And if you knew exactly how your advisor is paid, do you think you might be inclined to ask more questions before you sign on the dotted line?

We have always been fiduciary advisors.  A fiduciary advisor does not get paid for recommending one product over another, but generally charges a fee for advice or for managing the account as a whole.  In my practice, I have to provide my clients with services such as Social Security analyses, Roth Conversion calculations, tax projections, etc. for roughly twenty years to make the same amount of money that a non-fiduciary advisor could make from selling a product.  That’s twenty years of money that stayed in my client’s pockets, and I’m happy that it did.

Regardless of whether the DOL fiduciary rule is overturned or not, you should ask whether the individual(s) who manage your money are fiduciary advisors.  While what’s happened in the past is water over the dam, what happens in the future could be life-changing for you and your family.  The proposed Death of the Stretch IRA legislation means that billions of dollars will be passed to the next generation within the next twenty years.  The government is looking to get their hands on as much as possible, and the taxes that will be due after the Death of the Stretch IRA will have a devastating effect on your family’s inheritance.  Don’t add to that problem by choosing the wrong advisor.   Put your trust in one who adheres to a fiduciary standard, whether the government makes it the law or not.

Please stop back soon!


For more information on this topic, please visit our Death of the Stretch IRA resource.