The long-awaited regulation that aims to protect your retirement savings and require your financial advisor to work in your best interest will take effect June 9.
The Department of Labor delayed the original start date of April 10 by 60 days after President Donald Trump issued a presidential memorandum in February, calling upon the agency to review the regulation and prepare an updated economic and legal analysis.
"When investors receive retirement investment advice, they will receive pretty significant protections and the advice will be in their best interests," said Micah Hauptman, financial services counsel at the Consumer Federation of America.
The rule covers 401(k) plans and individual retirement accounts (IRAs). Here's what you can expect in June. You can also consult the DOL's list of frequently asked questions for additional help.
Starting on June 9, your financial advisor and his or her firm will need to comply with the "impartial conduct standard."
This requires financial advisors to charge no more than reasonable compensation, avoid misleading statements and, perhaps most importantly, provide advice that's in the best interest of the investor.
Additional requirements will take effect on Jan. 1, 2018. These provisions include specific written disclosures that financial services firms and advisors must make to clients.
At the heart of the battle over the rule, which was hotly contested by the financial services industry, are $7.85 trillion in IRA assets. These accounts are moneymakers for firms as clients often roll their savings out of 401(k) plans when they retire or change jobs.
Meanwhile, the Labor Department is still reviewing the fiduciary rule, per Trump's presidential memorandum.
In the DOL's list of frequently asked questions, the department said it would seek additional public input regarding ideas for possible new exemptions or regulatory changes based on recent comments.
The DOL will ask the public whether an additional delay of the Jan. 1 portion would "allow for more effective retirement investor assistance" and help firms avoid additional expenses that may clash with how Labor ultimately proceeds.
Organizations representing financial services firms have pushed for more delay.
"While we are disappointed that the Department of Labor has chosen not to further delay the rule until the Department has completed a review of the entire rule's impact on investors, we appreciate Secretary [Alexander] Acosta's recognition of the rule's negative impact and his desire to seek public input," said Kenneth E. Bentsen, president of the Securities Industry and Financial Markets Association, in a statement.
Nevertheless, many firms have already adopted changes to help mitigate conflicts of interest, including the use of mutual fund "clean shares," which exclude certain fees.
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"It's still the Wild West for IRAs," said Hauptman of the Consumer Federation of America. "We get protections in phases."
To be sure, you need to perform your own due diligence on your financial advisor.
Ask the following questions:
- Are you a fiduciary? Find out immediately if your advisor is acting in your best interest. Get the point across with this fiduciary oath from The Committee for the Fiduciary Standard. It's best to ask this question in writing. "If you deliver the questions orally, you get a wishy-washy answer," said Scott Puritz, managing director of Rebalance IRA. "Send an email and request that the answer come back in writing."
- How are you paid for your services? Ask whether you're paying a fee for your advisor's help, be it hourly, as part of a subscription or based on assets he or she manages for you. Find out whether your advisor receives a commission for the sale of mutual funds, insurance and annuities.
- Where do you keep your assets? Some large broker-dealer firms will hold your assets in custody because you have a brokerage account with them. If you're using an independent fee-only advisor, he or she will likely hold your assets at a custodian, such as TD Ameritrade, Charles Schwab or Fidelity.
"Don't let your advisor take your money and move it to their account," said David J. O'Brien, principal at Evolution Advisers in Midlothian, Virginia. Be sure to match the statements you get from your custodian and the statements your advisor provides you.
- What are your qualifications? There's an alphabet soup of different designations for financial advisors, but keep an eye out for the best-known credentials: certified financial planner, chartered financial analyst and certified public accountant. All of those require study and practical experience to achieve them.