Obama Backs Stricter Advisor Rules

Article by NuView president Glen Mather, in response to this Wall Street Journal article:

With a considerable push from the current administration, the Department of Labor (who has oversight over IRAs and 401(k) rules) is creating new rules for financial advisors that provide services for retirement plans and participants. As a separate initiative, the SEC is devising new fiduciary standards, which has introduced a great deal of uncertainty in the world of financial advisors.

The agencies seemed to have a particular concern about advisors who recommend rolling their client’s funds from a 401(k) plan to an IRA to make particular investments. Should these advisors be held to the higher standard of “fiduciary,” which under the current definition would mean getting to know the client and their personal financial situations at a far deeper level, as their recommendations must be in the best interest of the client?

Most legislative and administrative changes, drafted with the best possible intentions, lead to unintentional consequences. In this case, since most advisors who spend a significant amount of time with their clients charge a fee for their services, most would elect not to serve the client with smaller account balances, as they would either be unprofitable to the advisor, or expensive to the retirement account holder.

Perhaps a further result of tightening the advisor rules will be that the employee leaving their 401(k) plan will be forced to make decisions on their own – or in other words, self-direct their decisions.

In either case, making an informed decision is a key component.  What is a bit tragic is that there are so many 401(k) and IRA holders who simply choose not to inform themselves about choices they have. There will be no one, including your financial advisor, who has a greater stake in your retirement plan. With a self-directed IRA, you serve as your own fiduciary – and thus you never have to worry about not knowing your own financial situation. You educate yourself about the choices and make the best decision on your investments, and your IRA administrator will move the funds as directed.

For the 75 million IRA and 401k plan participants, perhaps these new initiatives will be positive ones. The fact is, the self-directed IRA holders have figured this out for themselves long ago.