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The DOL (Department Of Labor), The Financial Services Industry…And You!

Note: This article is to begin making our clients aware of this new evolution in the financial services industry. It holds no opinion or judgment on the rule, it's intricacies or politics, and is just a small part of a very complex issue affecting every American who is trying their best to save and prepare for a secure retirement.

In 2010, the Department of Labor (DOL) began a complete overhaul of the financial services industry. The first question you may ask, is why the DOL? Why not the Securities and Exchange Commission (SEC)? That's a very good question- and one that is still unanswerable, 7 years later. Regardless, after 7 years, the DOL has put in place a new set of rules that affect the way financial advisors and brokers interact with you- the public- regarding all of your qualified accounts, meaning how advice is rendered from your advisor on your retirement accounts, including 401(k), 403(b) tax sheltered annuity, IRA's Roth IRA's, and the rollover rules when you leave your employer and want to roll over your company retirement account. Presently the rules apply only to your retirement accounts, but most broker dealers, including First Allied, will apply the same set of rules to all of you accounts. These are not Chestnut rules or changes, nor First Allied's changes, but country wide changes that we have to adhere to.

The heart of this rule is to place a "Fiduciary Standard" to the financial services industry. This essential means that THEY have decided that all people in the industry must be sure to put their clients interest first, before their own. Now, I personally have been in the business since 1984 and have done so since the day I was registered- their goal is to weed out those that they feel put their interest above the interest of their clients. The same could be said for virtually any industry- there will always be those who are less than honest whether it be our industry or a car mechanic for example, but for whatever reason, in 2010 they started this campaign. There are some basic ramifications to this rule that is important to be aware of:

Their goals of evolving the financial business is to move to a fee-based model where client's pay a fee for money management- as opposed to a commission- based on the size of the client's account as opposed to the commission based model. We have been a believer in this model for more than 20 years, long before this evolution. As most of you know, we have been fee-based for most accounts (with the exception of products that are only commission based) since 1995. As of this date, the UK is all fee-based, and Australia is 85% fee based, phasing out commission based products on a 10-year schedule. While this puts the planner or advisor on the same side of the table as the client, meaning that if the client is down in their account, the fees are down to the advisor and vice-versa giving the advisor impetus to manage the account wisely, it is a problem for the smaller, commission-based client. If commissions are to be phased out, small accounts are costly to maintain to the advisor leading to a conundrum for the investor in finding advice from a qualified, licensed advisor for a reasonable fee. So, while trying to create a better advisory environment for the client, the new rule throws new problems into the equation for the smaller investor who needs advice but may not be able to get it as most advisors will have minimums for client accounts to curb losses. First Allied is actively working on a new model for clients who fall into this category.

From our side, we have seen adjustments in commission based investments, and new classes of shares that will allow them to be held in fee-based accounts. The implementation of the rule this summer has many ambiguities to it, and First Allied has a full legal team working on this issue for the past two years to assist us in understanding and conforming with the new rules. There is no reason for you to worry or fret, as no changes are necessary until, perhaps, the beginning of next year, with the exception of a boatload of new paperwork for the advisors. We believe that our clients should be informed in all areas of our industry, and that is why I am writing this article. I invite you to call and ask questions, and we will answer them to the best of our ability. Understanding and implementation of this new rule is still a quandary at best, and we just wanted you to hear it from us before you read or heard about the new rule

elsewhere. We will keep you up to date as this major change evolves, and assure you that your interest has always been our first interest, and will always be.

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