How the new ‘fiduciary’ rule will actually affect you

CNBC.com
November 07, 2016

A new rule is about to shake up your retirement accounts and the relationship you have with your advisor.

On April 10, 2017, the Department of Labor, the federal agency that oversees retirement plans, enables its so-called fiduciary regulation.

Starting on that date, broker-dealers and financial advisors will be required to provide advice that is in your best interest. It may seem surprising that wasn't always the case, yet the White House Council of Economic Advisers says conflicts of interest by investment advisors leads to $17 billion in lost income every year for most savers.

 

Retirement accounts are a big business for advisors, broker-dealers and the institutions that hold and invest your savings. As of the end of the second quarter of 2016, IRA assets totaled $7.53 trillion, according to the Investment Company Institute.

"The Department of Labor has done what the Securities and Exchange Commission is unable to do: create an enforceable best interest standard and rein in conflicts that aren't in the best interest of the investor," said Barbara Roper, director of investor protection at the Washington, D.C.-based Consumer Federation of America.

"While there may be some hiccups along the way in terms of implementation, the ultimate outcome is better advice and lower costs," she said. "We are already seeing that."

Financial services firms are preparing their businesses ahead of the rule. For example, Merrill Lynch recently announced that it would stop offering new commission-based IRA brokerage accounts through its advisors as of the April date.

Instead, clients will have three options for retirement-related investment advice: They can work with an advisor on a fee-basis, where he or she will be paid a percentage of assets invested. They can also use commission-based, self-directed brokerage accounts, or Merrill Edge Guided Investing, a fee-based robo-advisor option that will start early next year.

Here is what you can expect to see happen in coming months. Read More.