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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: SomedayStache on August 17, 2016, 07:24:53 AM

Title: Question on new Fiduciary Rule and its affect on middle-class retirement account
Post by: SomedayStache on August 17, 2016, 07:24:53 AM
I have a friend who is trying to understand the Department of Labor's new fiduciary rule and how it will affect individual retirement plans.  This friend understands the stated intent of the ruling (to protect consumers against unscrupulous financial advisors who steer clients to high-load funds in their self-interest or make unnecessary trades to get more commissions).  My friend thinks that most brokers' solution will be to go to a 'fee based' IRA with fees ranging from 1 to 1.5% and he thinks that will actually be bad for most middle-class Americans. 

I haven't paid attention to this ruling and don't have any answers.  However I get really excited when people IRL want to talk about retirement at all so I'd like to be able to have a conversation with him.  Here's his actual question:

"However, it seems that most brokers' solution to this new federal mandate is to go to a "fee-based" IRA (Charging the client a percentage of their account value and allowing for unlimited trades per year) which ranges from 1.15-1.5%. I feel like this will hurt most investors and line the pockets of the large brokerage firms. For example, if IRAs are mainly for middle-America (couples making >$184k cannot contribute) and yearly contribution limits are small, then the buy- and sell- load should be relatively small compared to charging a % of the account value. i.e., a $100,000 base Roth IRA account that contributes $5500/year, and maybe has one or two buys/sells maybe costs $500/year in commissions versus a $1500/year fee. Plus this percentage is charged no matter if the account goes up or down. It seems to me that this DOL ruling limits choice and hurts the middle class. Does this push more people away from commission based financial advisors and into more "auto" investment houses who maybe won't charge a flat percentage fee? "

Does anyone have any links I can send or reading material for me? 


Title: Re: Question on new Fiduciary Rule and its affect on middle-class retirement account
Post by: Gin1984 on August 17, 2016, 07:31:00 AM
I don't think it will effect the discount brokers, vanguard or fidelity because they don't try to get you to buy.  And yes, I think it will push people away from scammy financial advisers and I don't think that is a bad thing.
Title: Re: Question on new Fiduciary Rule and its affect on middle-class retirement account
Post by: boarder42 on August 17, 2016, 07:37:36 AM
i've talked to friends who work for EJ and friends who invest with EJ ... and their current stance is that they fall under the new fiduciary rules and are looking out for their clients best interests currently. HA what a crock.  let the law suits start rolling in.