Getting advice on how to make the most out of your money, to set you up for retirement, and provide for you throughout you life is one of the most important important things you will do. A 2015 report by the White House Council of Economic Advisors stared that “Americans likely lose about $17 billion from retirement savings every year because of bad financial advice from advisors with conflict of interests.” Americans were shocked to learn their financial advisors were allowed to give advice that was in the advisor’s best interest, not the client’s. Consumers were astonished their financial advisors were not a fiduciary and owed them no duty of loyalty or trust.
Based on that report the Department of Labor created new guidelines requiring financial advisors to act in the best interests of their clients. This is referred to as a “fiduciary standard” or the “fiduciary rule.” Prior to this rule, financial advisors could and did make recommendations that were contrary to the client’s best interest, but made the financial advisor more money. This left many people at risk of losing money when financial advisors could, at any time, did act their in self-interest.
This new rule “fiduciary rule” was to go into effect on April 10, 2017, despite protests and unsuccessful court challenges from financial planners and financial advisors. On February 3, 2017, President Trump signed an executive order requesting the Department of Labor delay implementation of the “fiduciary rule.” On February 28, 2017, the Department of Labor announced it would delay implementation of the rule for another 60 days, until June 9, 2017 while it further investigates whether, as opponents of the rule claim, it harms consumers.
Will the fiduciary rule protect elders?
The new rule “fiduciary rule” would require financial advisors to make changes in the way they help clients with their retirement accounts. It would require financial advisors who can be paid fees for directing their client’s money toward a particular fund to put their client’s interests ahead of their own. Currently, a financial advisor who is paid a referral fee by an asset manager for directing your money to that asset manager’s fund does not have to do what’s in your best interest. That financial advisor can direct you to invest in a bad fund simply because the advisor is getting a paid a good referral fee. Without this ruling, an may be more vulnerable to investments that are not in their best interest.
Even more disturbing than the harm to current investors, is news from around the nation about how many elders were unaware that financial advisors were not required to make decisions based on their client’s best interest. News story after news story profiled elders who assumed their financial advisor had been required to provide them sound financial advice based on their best interests. Elders were taking their financial advisor’s advice without questioning whether the advisor was giving them advice because it was more lucrative to the advisor and detrimental to his clients. Elders had dropped their guard and turned their life savings over to individuals who may use it for their own financial gain without regard to the consequences to the elder.
The media coverage of this rule has brought more awareness to this issue. It has helped consumers develop strategies to protect their life savings from unscrupulous financial advisors. It has also made some financial advisors set themselves apart by setting up private fiduciary rules in their own firms. All these things help protect elders and their retirement savings.
Elders and consumers must still be aware, without this rule, advisors may not guide elders in a direction that is in their best interest. “This rule puts the consumer in the driver’s seat,” says Mitch Caplan, CEO of Jefferson National. This rule requires financial advisors with more transparency with their clients. This provides more protections for elders.
Whether this rule is ultimately implemented, elders must still take actions to protect themselves. Research the credentials of your financial advisors. Understand what duties your financial advisor owes you based on both federal and state laws and regulations. And, be investment savvy. You do not have to take anyone’s advice. You can get a second opinion and look for alternative options. Be sure to keep yourself up-to-date on the status of this legislation and stay informed. If you need more information, don’t hesitate to contact us.