Fiduciary Duties and Retirement Planning

In a recent issue we dealt with a case where an insurance salesman who held himself out as giving investment advice was found to have violated a “fiduciary standard” which he owed a customer. This decision may be part of a growing trend that the federal government is now getting involved in.
The Department of Labor (which has authority over retirement plans under ERISA) has promulgated a final regulation that would impose a fiduciary relationship on all brokers and retirement advisors who charge a fee for “tax advantaged” retirement plan sales and services (for example advice and sales related to IRAs and 401(k)s). The general concept is that the broker and advisor put his customer’s interest before his own. For example, this means that the broker or advisor must disclose all fees or commissions (that heretofore may have been “hidden”) that he might receive as a result of such a sale. An advisor must also meet special disclosure requirements if he markets or advises the purchase of any “proprietary” investment product (that is a financial product produced by an affiliate of the advisor). Finally, another widely touted aspect of the rule is that a broker or advisor cannot charge a fee for a rollover of a 401(k) to an IRA, unless he meets certain exemption requirements.
The Department of Labor expects these regulations to save retirement investors $33 to $35 billion over the next 10 years and $66 to $76 billion over the next twenty years, the idea being that advisors will be less likely to steer investors into higher fee investments.

– Rod Fluck

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