The New DOL Fiduciary Rule
Fees pertaining to A shares, C shares, expense ratios, commissions and advisory services need to be fully disclosed. As a result, all the concerned entities are scrambling to comply by the April deadline.
Impact on Mutual Fund Providers
For mutual fund companies, this puts immense pressure on reducing expense ratios to compete with other lower-cost financial products. Many retirement plans are currently reevaluating the funds they provide to their participants to ensure that they are the best available options. In fact, some of them have decided to add ETFs to offer lower-cost options to their participants. For instance, Schwab now offers 401(k)s with a choice of either mutual funds or its Schwab Index Advantage ETFs. Make sure to find out the questions that you need to ask when purchasing mutual funds before making your decision.
Impact on Mutual Fund Investors
This will now be under great scrutiny, as professionals must disclose that a client has the right to stay in the plan, which will most likely have much lower internal costs or fees. If there is no value in lieu of fees, the professional is not acting in the best interest of the client. Therefore, mutual fund investors will be better educated on how investment fees are charged and measure the differences between any existing or new funds and their lower-cost alternatives.
The negative aspect of the rule is that now investors will have limited access to investment options and advice. Already, several brokerage firms are adjusting their retirement business for only higher account valued clients because lower accounts are not worth the risk of non-compliance of the rule.
Moreover, clients that decide to stay in a retirement plan can experience lower fees, but will not receive any ongoing advice, which can potentially cause more harm. With retirement plans also looking to comply with the rule, the investment options will be limited within the plan in an effort to minimize fees. Check the various costs attached to mutual funds before you start to invest.
The Transition Process
Moreover, brokerage firms and investment advisors are also increasing the account size of clients with retirement accounts, so clients with smaller accounts might be transitioned to other advisors.
With the rise of the robo-advisor, does the lack of human interaction serve in the client’s best interest?
Under this new rule, any insurance professional that works with qualified plans, like IRAs or 401(k)s, will be required to act as a fiduciary.
Under this new rule, any broker-dealer that hires financial professionals who work with qualified plans will be required to act as a fiduciary.
Under the new Fiduciary rule issued by the DOL, any financial professional who works with qualified plans will be required to act as a fiduciary.
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Kristan Wojnar, RCC™
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