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The Department of Labor Ruling and the Importance of a Fiduciary

The Department of Labor Ruling and the Importance of a Fiduciary

On April 6, the long-anticipated final rules from the Department of Labor were issued, which are expected to significantly impact how people save for retirement and protect investors from biased retirement advice. The rules now require a higher standard of investment brokers, mandating that they act in the best interest of their clients when offering advice and recommendations. While this type of fiduciary standard has already been in place for the management of corporate retirement plans, such as 401(k)s, the rules now also apply to individual retirement accounts.

Prior to this rule, a broker’s recommendation only had to be “suitable” for the investor. The problem with this is that advisors with large wirehouses would sell high-fee products, even if a lower-priced option was just as suitable or available, in order to get a higher commission. The goal of new rule is that there will be fewer conflicts of interest in the retirement planning industry.

According to one 2015 report from the White House Council of Economic Advisers (CEA), fees and biased advice costs middle-class families in America an average of $17 billion per year and reduces annual returns on retirement savings by 1 percentage point. This may sound small, but a 1 percentage point lower return can reduce one’s savings by more than 25% over the course of 35 years. It’s estimated that these new rules may affect as much as $14 trillion in assets.

While these new rules are a step in the right direction, it’s important to understand that Wall Street brokerage firms will still be allowed to sell proprietary products, which means their advice could potentially be biased. For example, annuities and other high-fee investments that provide brokers a higher commission can still be sold as part of retirement accounts. And while brokers must inform clients that they’re choosing to be paid commissions, if the investor neglects to read the email notification, they won’t know where their broker’s interests lie. Additionally, these rules will be implemented in several phases, with the best-interest standard not taking effect until April 2017, and the other elements in 2018.

What Does This Mean for You?

Despite these changes, it’s as important as ever to work with a trusted fiduciary advisor. At Mason & Associates, Inc., we are a team of independent registered investment advisors serving our clients as fiduciaries. Simply put, a fiduciary standard means that we already have put your best interests first, no matter what. We are committed to providing you with advice without any conflicts of interest. We only recommend services and solutions that we believe align with a client’s individual goals, instead of those that pay certain commissions. We are required to act with undivided loyalty to you and provide complete transparency and disclosure when it comes to our compensation or investment approach. As a result, we believe our business model offers greater transparency so you always know what you are paying in fees.

Particularly until the newest rules take effect, be sure your friends and family thoroughly research an advisor before choosing to work with him or her. An advisor should be open to sharing their business philosophy, how they choose investments, what their process looks like, any potential conflicts of interest they face, and how they’re paid. Working with a fee-based independent advisor may help you feel more confident in your investments than a commission-focused broker.

At Mason & Associates, we take pride in our transparency and objectivity. If you’re unsure about your current retirement strategies, haven’t reevaluated your investments in several years, or are just interested in learning more about what it means to work with a fiduciary, we are happy to offer you a complimentary consultation. You can learn more about how we work and how we may be able to help you build your retirement savings and feel more confident in your future retirement. Call our office at 323.254.3072 to schedule an appointment.

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7474 North Figueroa Street
Los Angeles, CA 90041

Phone: 323.254.3072
Toll Free: 888.988.401K
Fax: 323.395.0714

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