This spring a new law goes into effect designed by the Department of Labor known as the fiduciary rule. While there are many lawsuits in the making attempting to overturn parts of this rule, no one knows if there will be any changes. But as of now what the broker community knows is that soon, they can no longer use commissioned, or loaded funds with 12 b1 fees in a retirement account. What that really means is that all the IRAs and 401(k)s that were set up by brokers with A, B or C shares are now being converted to advisor class funds in a fee based account. The problem with this from the client’s perspective is that they have been paying commission for fund shares in lieu of advisor class funds in a fee-based account for many years. Now those funds are being shifted into a fee-based account anyway. Brokers who sell products like loaded mutual funds in retirement accounts received an upfront commission for the sale of the shares and then a trail commission on assets in those funds. Because this new ruling requires that your broker, advisor or anyone else who works with your money act in a fiduciary capacity, in other words, doing what’s best for the client, not the broker. Investment advisors like myself are obligated to treat our clients with fiduciary care and that retirement money be placed in an account that uses low-cost mutual funds, exchange traded funds or individual stocks and bonds. Products, like indexed annuities used must be well justified and fee transparent. Asset management fees charged to manage those assets should be very fair and transparent to the client, along with any fees or cost charged by the fund itself.
If you are one of those clients that has been told that you are going to be moved to a fee account, maybe it is time to ask yourself, should I re-evaluate my retirement plan and asset mix to make sure that I am not paying too much in fees and my needs and objectives are aligned with the current portfolio make up. If your financial advisor did not treat you in a fiduciary manner before the new fiduciary rule, what makes you think that advisor has suddenly learn to manage client money with the client’s best interest in mind? There is a big difference between a sales organization concerned with product placement versus asset management and or allocation. Selling product requires sales skills. Managing money requires knowledge and training that typically takes many years to acquire. The long-term effect of this new fiduciary rule, I believe will be positive. But there is a time we are entering where salespeople are expected to view their clients with a whole other set of eyes and skill set they may not possess.
Mark Patterson is Chief investment officer with MHP Asset Management and can be reached at (603) 447-1979 or mark@mhp-asset.com.
