There are roughly 300,000 people in this country that identify themselves as financial advisors, but when it comes to the way the various professionals using that moniker conduct their businesses, not all are created the same. For instance, until now, if they chose to, stockbrokers could actually sell you a financial product that was not in your best interest.
But not anymore.
The Department of Labor just pushed through some new regulations that will require anyone recommending financial products for retirement accounts to be held to a fiduciary standard. This means that any broker recommending a financial product for an IRA or other retirement plan must put your interests ahead of their own.
It’s about time. I’ve been in this industry for roughly 25 years and I’ve seen so many lousy products pushed upon consumers by unscrupulous brokers and insurance salespeople that I’ve lost count. Products or investments that have outrageous fees, lifetime surrender charges, or are next to impossible to sell.
Having a higher legal standard for retirement accounts will keep thousands of people from being ripped off.
If you thought that brokers or insurance salespeople already had to put your interests ahead of their own, you were like the majority of Americans, and you were, unfortunately, wrong. Most brokers only had to follow what’s known as a “suitability” standard, meaning they could legally put their own interests ahead of yours as long as the product was “suitable” for you.
One problem with the new regulation is that it applies only to retirement accounts, so a financial salesman could still peddle products to you on your savings that are held outside of those. That’s right. This new ruling only applies to IRAs and the like.
At Hanson McClain Advisors, we are one of only 30,000 Registered Investment Advisors in the U.S. that has always had a legal duty to put your interests ahead of our own. Because of our filing with the Securities and Exchange Commission, we have a fiduciary duty to put your interests first on all of your investments, not just the ones held in retirement accounts.
It’s a bit of an irony that the Department of Labor is the organization that will now be regulating Individual Retirement Accounts. One would think the “labor” regulators wouldn’t get involved with your savings once you’ve left the workforce. But the other regulatory bodies weren’t making any progress in this area and there were too many savers being taken for a ride.
This new ruling, which takes effect next April, may not be perfect, but it’s a step in the right direction.
To find out what other questions to ask when considering a financial advisor, read our “How to Select a Financial Advisor” eBook.