Many of the articles I have written over the last few years have dealt directly with the issue of products that come with high fees and steep commissions paid to brokers. The new Department of Labor rules, which take full effect in January of 2018, will help to eliminate these products from being sold inside retirement accounts. This will help to alleviate the conflict of interest from brokers selling products to clients based on the commission they receive. While this is a great start, this rule only applies to retirement accounts.
The new rules will require brokers to fully disclose the fees clients are being charged. All of this will be required to be made available in written or online disclosure. Many products sold today are very misleading when it comes to fees and expenses. Most of these products come in the form of an annuity. Annuities promise certain things, but in my opinion, are overpriced compared to the benefit received. The fees and expenses often eat into the principal and overall investment return and this leads to retirees having less money at retirement due to poor performance. Brokers selling products for retirement accounts will now be held to the “fiduciary standard”. This standard already applies to Registered Investment Advisory firms and fee-only planners. This is the reason I left the brokerage industry and began working as a Registered Investment Advisor seven years ago.
Registered Investment Advisor’s help clients manage their money and the risk that comes with investing, for a fee. They do not get paid commissions. Fees are calculated based on the assets the client invests. This eliminates any conflict that can be associated with products which generate a commission. There are thousands of products in the investment world and it can be confusing for the average person to understand exactly what they are invested in. I can’t tell you how many people come to me with investments that they do not understand. I have said this on many occasions, but do not invest in something you do not fully understand. The one thing that I have learned in my 20 years of experience is that keeping things simple is the best way to invest, and if you own an investment you do not understand you have no business putting money into it. So what do these new rules mean to you as a retail investor?
It means that many of the products sold by brokers will have to be sold at a lower cost to the investor inside retirement accounts. This is a step in the right direction, but it does not eliminate the problem entirely. The rules in the financial services industry are changing for the better to help the consumer, but you still need to be diligent when it comes to investing. Please call us at (772) 223-9686 if you would like more information on this topic or a free portfolio review.