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The Department of Labor began phasing in its new fiduciary rule in June 2017. The rule simply mandates that all advisors who offer retirement advice act as fiduciaries when doing so. This standard means that retirement advisors are now required to act in your best interests. The DOL’s fiduciary rule applies to most retirement accounts, including IRAs, defined-benefit and other pension plans, and defined-contribution plans, which include 401(k) and 403(b) plans. Other investment accounts are exempt for the time being.

The fiduciary rule is all about transparency and is intended to reduce the conflicts of interest that come up when brokerage advisors or financial advisors employed by insurance companies recommend an investment because it pays them a fat commission. Instead, these advisors will now be required to make investment recommendations because the investment is better for your wallet, not theirs. The DOL and consumer advocates estimate that consumers are losing $17 billion every year by overpaying brokerage firms and insurance companies to invest their individual retirement accounts. This rule will cut some of those fees – and the firms’ profit margins in the process.

How Is Your Broker Dealing with the Fiduciary Rule?

Some of the nation’s largest brokerage firms are claiming that the DOL's fiduciary rule is making it difficult to fully serve their smaller clients, meaning those with IRA accounts with balances of less than, say, $100,000. For example, Merrill Lynch announced it already made the switch away from commission compensation to fees ahead of the full implementation of the rule, although most of the industry is sticking to the commission model. Adjusting to the fiduciary rule is expected to cost the securities industry $20 billion in lost revenues by 2020. That’s according to an A.T. Kearney industry study reported in October 2016.

Many of the largest brokers still have yet to figure out the best way to make the transition, and plenty of brokers still question whether the DOL’s new "best interest" rule is really in the client’s best interest. For some brokers, the world has been turned upside down by a rule that requires them to put their clients’ financial interests ahead of their own. What used to be easy money for brokerage advisors specializing in clients with IRA rollovers is no longer a slam-dunk, and many brokers aren’t accustomed to clients questioning their fees.

The Broker May Fire You First

Some are concerned that the fiduciary rule will do the opposite of its intent and actually make it harder for some investors to get advice. Brokerage firms could limit investment choices or access to advice. The reason: Even if they raise their fees, it’s not enough to make up for lost commissions, and they may not want to deal with those smaller, less profitable accounts.

InvestmentNews quoted commentary that David Blass, general counsel for the Investment Company Institute, made to the SEC late last year, as major brokerages prepared for the implementation of the rule. He expressed concern that investors with small holdings in mutual funds are being abandoned by their financial advisors and left without access to financial advice. While he had no hard numbers to support his anecdotal evidence, this is a valid concern. However, he's only partially right.

Financial advisors fit into one of two buckets: (1) true fiduciary advisors who are registered with the Securities and Exchange Commission, and (2) advisors who are salespeople employed by brokerage firms. In most cases, it's the salespeople who are saying that if they’re forced to comply with the fiduciary rule, they can't make enough money on clients with smaller portfolios. Brokerage firms are deciding to either change their business models and adapt to the new fiduciary environment or fire their smaller investor clients.

How to Find a Real Fiduciary

Changing advisors may be stressful, but it’s your retirement money at stake. If you're one of the millions of people with an IRA at one of the full-service brokerage firms, and you’ve been given your walking papers by your financial advisor, don’t worry. There are thousands of advisors who are full-time fiduciaries, with or without a rule that says they have to put their clients first.

Here are some tips for making the switch:

  1. Skip the big Wall Street brokerage houses. Your best bet is going to be an independent registered investment advisor who is already fee-based or fee-only. This may sound counterintuitive, but you need someone who's independent and doesn't answer to a huge firm. Such advisors set their own rules about which kinds of clients they will serve, including their own limits on portfolio size, if any.
  2. Check an advisor’s records via FINRA's BrokerCheck site and the SEC's Investment Advisor Public Disclosure site. Enter the advisor's name and/ or the name of the firm. They should be willing to give you their CRD (Central Registration Depository) number to make the searches even easier.
  3. Ask for a full list of the fees and expenses. Then get a clear explanation of how these fees are to be paid. If you don’t know for sure that the broker is a fiduciary, ask him or her to put it writing.

Remember, not all fiduciaries are created equal, nor are all advisors competent. All the same, these steps will help you find an advisor who wants to work with you, even if your account is considered small by Wall Street standards. For more, see DOL's Fiduciary Rule Explained as of June 9th, 2017.

Pam Krueger is the founder of "WealthRamp," co-host of "MoneyTrack" on PBS and national spokesperson for The Institute for the Fiduciary Standard.

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