You’ve heard the classic question: “If a tree falls in the forest and there’s no one there to hear it, does it make any noise?” Starting June 9, the Department of Labor is posing a similar query to retirement account investors: “If the government creates a rule but doesn’t enforce it, is it really a rule?”
That’s the gist of the May 23 announcement in a Wall Street Journal op-ed piece by Secretary of Labor Alexander Acosta. Secretary Acosta said that while the rule, established during the Obama administration, will go into partial effect on June 9, 2017, the Department of Labor (DoL) will not begin enforcing any of the rule’s provisions until January 1, 2018, when the rule is set to go into effect in its entirety. The debate over this rule was forced back into the public limelight this past February, when President Trump, who has made his opposition to the rule well known, issued a memorandum delaying the implementation of the rule from its original start date of April 10 to June 9, to permit time “for further study.”
So what about you and your retirement accounts? Well, according to the guidance issued by the DoL, you could see some things change, even though the fiduciary rule will not take full effect until the new year. For example, if you have retirement accounts—Roth or regular IRAs and Health Savings Accounts (HSAs), for example—at a major brokerage house, the people who answer the phone, while they can still execute orders that you give, may not be able to advise you on how to allocate or invest your retirement funds. Similarly, if you have been asking your insurance agent or accountant for investing advice with your retirement accounts, they may not be able to help you. If you are rolling a 401K account (which is not affected by the rule) into an IRA account (which is), the person handling your IRA may not be able to advise you on what to do with the funds.
“Why?” you ask. The answer is in the word “fiduciary.” By law, a fiduciary is defined as a person who is ethically bound to act always in the client’s best interest, which means giving impartial advice that is not influenced by the commission or compensation received if the client buys a certain product or invests in a particular fund or account. Also, if a fiduciary receives a fee for giving advice or guidance, this fee must be fully disclosed to the client, as well as any conflicts of interest that may exist. Most stockbrokers, insurance agents, mutual fund salespersons, and accountants are not required to meet this requirement. Under the fiduciary rule, such persons are prohibited from giving investment advice for funds in retirement accounts.
On the other hand, investment advisors with the Certified Financial Planner (CFP) or Registered Investment Advisor (RIA) designation are required to operate under the fiduciary standard. So, if you are already working with a financial professional who holds either one of these designations, the details and ultimate fate of the Obama-era fiduciary rule will make no difference in how your accounts are managed. You are already receiving advice that meets the fiduciary standard.
Stay Diversified, Stay the Course!