Fiduciary Snapshot: Retirement Savings In 401ks Are Under Attack

Trump is in his first 100 days of office, and the government is already undergoing a massive transition. Amidst the swift actions he’s taken at the executive level, it’s still up in the air as to what exactly will happen to the Department of Labor’s Fiduciary Rule.

The U.S. Department of Labor passed the Fiduciary Rule to be enacted beginning April 10, 2017. The rule requires all financial advisors and brokers to act in “the best interests” of their clients when it comes to retirement accounts, including 401k’s, individual retirement accounts, IRA rollovers and other retirement-qualified funds (the rule doesn’t affect non-retirement accounts). Experts believe that the rule will affect more than $3 trillion in retirement assets in the U.S. with the Department of Labor estimating the rule could lead to gains of $40 billion for those saving for retirement over the next 10 years.

Currently, many brokers – or “financial advisors” who are not fiduciaries – simply had to meet a “suitability standard,” meaning that they could conceivably steer clients into products that pay the advisor a higher commission, if that product is “suitable” for that client. (Few people notice, but your 401k plan may have unjustifiably high fees – sometimes as high as 2% or even higher.) Proprietary products, such as proprietary annuities, can still be sold under the rule if appropriate disclosures about the product or compensation are made.

Sounds like the fiduciary rule is a great thing, right? Who wouldn’t want this? Well, large banks and brokers and their lobbying groups in Washington DC have fought this rule tooth and nail. Why? Because they would have to give up some big fees – fees that can eat up 20%, 30% or even 40% of your retirement money.

The fate of the rule has been contested since the election in November. Now that Trump is in the White House, some folks in the industry speculate that the rule will be repealed or delayed, while others deny the mere possibility to do either. Because Personal Capital is a Registered Investment Advisor (RIA), it is our obligation to follow the fiduciary standard to act in our customers’ best interest, and not serve our own bottom line first.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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