Newspaper article St Louis Post-Dispatch (MO)

Fiduciary Rule Will Give Investors the Honest Advice They Need

Newspaper article St Louis Post-Dispatch (MO)

Fiduciary Rule Will Give Investors the Honest Advice They Need

Article excerpt

The financial advice industry is about to go through its biggest regulatory change in decades, but many retirement savers may not even notice.

When a new Labor Department regulation takes full effect in 2018, Americans with Individual Retirement Accounts and 401(k) plans will finally get the unbiased advice they think they've had all along.

Under the existing rules, they weren't always getting that. As long as an investment was broadly suitable, many investors got the product that was most profitable for the broker instead of the one that was best for them.

That has to end under final rules published Wednesday by the Labor Department. The rules require retirement-account advisers to act as fiduciaries, which means they must always act in the client's best interest.

The final rules make some concessions to the financial industry, which fought the fiduciary standard for years. The Labor Department gave firms longer to comply, and it eased some disclosure and paperwork requirements.

Still, some firms' traditional business models face a big challenge. High-commission annuity sales and kickbacks from mutual funds will be allowed, but they must be justified under the best- interests standard.

That may be difficult or, at any rate, the higher standard may make firms' compliance departments nervous. Michael Wong, an analyst at Morningstar, says at least $2.4 billion of revenue is at risk.

That includes commissions and surrender fees on variable annuities and fixed-index annuities, commissions on alternative assets like hedge funds, and revenue-sharing payments that mutual funds make to brokers.

He sees retirement money flowing into low-cost index funds and exchange-traded funds, and out of annuities sold by insurance companies.

Winners and losers are already becoming apparent.

"We have already seen tens of billions of dollars of market capitalization shift among different firms in the wealth management sector because of this rule," Wong said. …

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