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Dollars and Sense: The Department of Labor Springs into Action

It looks like the spring of 2016 will be more than turning the page on the calendar for the financial services industry and for those individuals that seek advice for retirement from financial advisors. By the time this article is published the Department of Labor (DOL) will have published its final regulations regarding the “Fiduciary Rule”.   If you presently work with a financial professional who gives you retirement advice and or investment recommendations for your IRA, ROTH IRA, rollover IRA, inherited IRA, SEP IRA or spousal IRA that relationship is about to be redefined.

Part of the Fiduciary Rule means that your financial advisor must offer unbiased advice, regardless of the investment product being recommended. This could be difficult for a brokerage firm or insurance company that offers proprietary (investment products that are exclusive to a firm or insurance company) products that generally do give higher compensation than non-proprietary products. In other words, advisors who have incentive to use one retirement vehicle, whether that incentive is for higher compensation or trip qualifications, can no longer continue with such a structure.

There has been much controversy surrounding the Fiduciary Rule, so much that the original proposal was shelfed back in 2012. You might ask, what is wrong with putting a client’s best interest first and offering unbiased advice? Nothing! In fact most financial advisors already put their customers’ best interest first. They are hardworking men and women who go into this field to help families achieve retirement security. Then why would there be controversy about the new regulations? Because as written, financial advisors will no longer be able to receive any compensation in the form of commission, service fees or on-going 12B-1 fees for advising you on your retirement accounts.

If an advisor wants to continue to be compensated for giving retirement advice (with or without investment recommendations), they must now enter into a contractual agreement with their client. The contractual agreement is called a “Best Interest Contract Exemption” or BICE. The BICE contract will have full disclosure of compensation and other fee information, a warranty that neither the advisor nor the financial institution will make many misleading statements and disclose the steps the advisor and financial institution will take to mitigate potential conflicts of interest.

The other DOL alternative is to use fee-based programs where, instead of your advisor being compensated by the investment or insurance company, they would be directly charging you a fee based on the assets under management (you write a check). Fee based programs may not be appropriate for every investor, especially for smaller accounts. And, therein lies the problem with the new DOL regulations – the added costs for implementation. A study conducted by the Financial Services Institute with Oxford Economics Projects predict that the rule will cost the industry nearly $3.9 billion dollars to implement! That figure is not far-fetched as this is one of the most comprehensive revisions of fiduciary advice regulations since 1974. The industry concerns are that these costs will likely result in less access to retirement planning advice and services for small and medium sized investors.

If you have not had a conversation or received information about the DOL from your advisor, call them. You will need time to understand how this will affect you and what changes, if any, you might expect. Try to get a better understanding of the BICE contract and what it will mean to you. Be ready to explore your options going forward. The existing proposal would require financial professionals to be in compliance in 8 months from its release. A google news search of “DOL Fiduciary Rule” will get you up to speed.

Roberta L. Nestor is a financial advisor practicing at 491 New Haven Avenue in Milford, CT offering retirement, long term care, investment and tax planning services. She also offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network – a member FINRA/SIPC and a Registered Investment Adviser. Fixed insurance products offered through Nestor Financial Network are separate and unrelated to Commonwealth. Commonwealth Financial Network or Nestor Financial Network does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation. Roberta can be reached at Nestor Financial Network, 203-876-8066 or

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