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Scam alert: New rules will make your nest egg a top priority

Created date

June 22nd, 2016

It’s a sad truth that when it comes to money and investing, many of us haven’t the foggiest notion of what to do. That’s why so many people rely on the expertise of qualified financial planners to help secure their retirement income. 

When a financial planner suggests an investment, many people take the advice without asking questions. They trust their advisor to make the best recommendations for their unique situation. However, sometimes, financial advisors are acting on their own behalf and not their clients’, steering them toward investments more beneficial to the seller of those products, not the investor. While this may not be an outright scam, it’s safe to say that many people don’t realize or understand that an advisor’s motivation is sometimes his or her own income. 

Ensuring a fiduciary relationship

The White House estimates that such tactics cost the American people $17 billon a year. New rules unveiled by the Obama administration aim to protect consumers and their retirement savings by cracking down on conflicts of interest. The rules require retirement investment advisers to meet a “fiduciary” standard—putting their clients’ best interests ahead of their own profits.  

In a statement, the White House said, “While many investment advisers acted in their customers’ best interest, not everyone was legally obligated to do so. Instead, the broken regulatory system had allowed misaligned incentives to steer customers into investments that have higher fees or lower returns—costing some middle-class families tens of thousands of dollars of their retirement savings.”

Consumer advocates, including AARP, and many Democrats applauded the announcement. “This is an important step that could help protect the retirement security of millions of Americans,” says Pamela Banks, senior policy counsel for Consumer’s Union. “As we review the details of these final rules, we are optimistic that they will help remove conflicts of interest that can jeopardize a happy, financially healthy retirement.”

The financial industry, business groups, and many Republicans are not in favor of the new rules. “This is Obamacare for your IRA and 401(k),” says Rep. Jeb Hensarling (R-Tex.). “The rule will hurt those Americans with low and middle incomes—ultimately jeopardizing their financial independence and retirement security.” 

What do the rules mean to the average investor? In simple terms, a client’s nest egg becomes the number one priority. Investment advisors who charge a flat fee won’t be impacted because federal laws already require them to put their clients’ interests first. That is not the case with insurance agents, brokers, and others who make commissions or who sell products with fees that impact their bottom line. Those advisors have not been considered fiduciaries, until now.   

The rules will be phased in over an eight-month timeframe beginning April 2017.  The new rules aside, before you invest, ask questions. Find out how much of your money is going toward fees or commissions. The best way to protect your nest egg is to know what’s going into it and most importantly, what’s coming out of it.