The Impact of the Department of Labor's (DOL) Fiduciary Rule

By Justin Bolmgren

3 Key Points for Investors

Beginning April 2017, many financial advisors will need to change how they work with clients, what they charge them, and why they service.  The impact of the new DOL Fiduciary rule effects clients with 401ks and IRAs and is one that proclaimed to benefit investors.

Point #1:  Fees Must Be “Fair”

A financial advisor’s fees cannot exceed reasonable compensation for services rendered.  If one client’s portfolio needs are more complex, or if the client wants or needs more of an advisor’s time, the fees for the client could be reasonable be higher.  However, the advisor must disclose the reason for higher fees and must be reasonable compared to industry.  For example, the average investment management fees are 1.02% but can range from .81% to 2.08%.  Rest assured, here at Bolmgren RetirePLAN, our investment management fees have always been well below average and transparent.

Point #2:  IRAs are Impacted

Generally speaking, any recommendation in an IRA, Roth, or 401k account would need to be in the “best interest” of the client. The “best interest” standard requires that financial advisors take into account all relevant factors and make an unbiased decision.  Previously, the lower standards allow for many conflicts of interest that negatively impact client accounts.  Conflicts of interest, such as kickback’s, 12b-1, commissions, and proprietary products, would no longer be allowed.  This “best interest” standard now for all financial advisors who serve 401ks and IRAs has long been the standard for fiduciaries, such as Bolmgren RetirePLAN.  

Point #3:  Rollovers

In the case that a financial advisor recommends a roll over from a 401k plan to an IRA, the financial advisor must document the specific reasons why the recommendation was considered to be in the best interest of the client.  An analysis given to clients must include the fees and expenses in the current plan vs. fees for the financial advisor’s services and document the reasons why the roll over is considered to be in the best interest of the client.  This rule will greatly reduce much damage being done within the financial industry rolling over hard earned retirement savings into high commission products like Variable Annuities and REITs.    

#Advisory HQ News reports the average percentage fee charged for $1 million in client assets is 1.02%.
         Source: http://www.advisoryhq.com, Average
         Financial Advisor Fees in 2016. How Much Does
         Financial Advisor Cost? 2/26/2016

*PriceMetrix reports charges for fee-based accounts – regardless of the amount of assets managed – range from 0.81% to 2.08%.
         Source: http://www.pricemetrix.com, Fee & 
         Managed Asset Pricing, 3/1/2011