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Dollars & Sense: New Year, New Rules

By Roberta L Nestor

What is in store for investors in 2017?  If you take the markets, interest rates and politics out of the equation, it might seem like the same status quo.  Contribution levels to retirement plans did not increase (same maximum limits as 2016); there are no real changes in our tax bracket structure; there are no changes in long term capital gains tax and there are no changes with taxation of estates.  However, there is one change that still hasn’t been talked about and it is one of the most unprecedented changes in the financial services industry.  The new “Department of Labor (DOL) Fiduciary Rule” takes effect April 10th, 2017 and is poised to change the landscape for financial advisors, and investors who own retirement accounts.

This rule expands upon the already existing Employee Retirement Income Security Act of 1974 (ERISA).  The 1,000 plus page regulation automatically elevates all financial professionals who work with retirement plans or provide advice on retirement planning to the level of a fiduciary.  The new rules will impact most all advisors, however, it is expected that those advisors who are commission based, such as brokers and insurance agents, will see the most impact.  ERISA was originally intended to protect employees from their employers when it came to the management of pensions and 401k plans.  The change to ERISA is that it now includes all individual retirement accounts (IRAs) whether they are SEPs, Simples, ROTHs, inherited, spousal, traditional IRAs or rollover IRAs.

Fiduciary is a much higher level of accountability than the “suitability” standards that exist today for financial planners and insurance agents.  Suitability rules were based on a client’s risk and investment objectives.  For example, selling a high risk investment to an 80 year old who only has social security income would not be considered suitable.  Now, financial professionals are legally obligated to put their client’s best interests’ first rather than simply finding “suitable” investments.  The new rule could therefore eliminate many commission structures that govern the industry today.

Advisors who wish to continue working on commission will need to provide clients with a disclosure agreement, called a Best Interest Contract Exemption, in circumstances where a conflict of interest could exist (such as, the advisor receiving a higher commission or special bonus for selling a certain product).  This is to guarantee that the advisor is working unconditionally in the best interest of the client.  All compensation that is paid to the fiduciary must be clearly spelled out as well.

How will the Fiduciary Rule effect investors with retirement accounts?  That might depend on what brokerage firm your advisor is affiliated with.  For example, Merrill Lynch has stated that as of 04/10/2017 they will no longer allow their advisors to sell any commission based investments for retirement accounts.  Whereas, LPL (an independent broker/dealer) announced that they will continue to offer commission based investments for retirement funds and will utilize the “Best Interest Contract Exemption” (BICE) that the DOL has made available.

What should you be doing?  At a minimum, having a conversation with your advisor just to see what changes, if any, will be made to your existing retirement accounts, or if you will be able to continue adding to these accounts in the future.  And, it’s time to learn more about fee-based plans that your advisor may have available.  Fee based seems to be the direction the industry is moving toward and fee based plans also satisfy the majority of the new DOL regulations.

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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