Author Topic: Fiduciary rule for advisors means the sky is falling! Or something.  (Read 2636 times)

CALL 911

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http://finance.yahoo.com/news/obamas-retirement-rule-big-mistake-134902554.html

Either I'm stupid, or the former CBO director thinks I am.

Basically his premise is that when advisors are fiduciaries, they'll stop "taking a smaller fee that is a portion of the gains in the account" and instead take a percentage of the total assets under management, and the little guy will pay "duplicative fees on American retirement accounts".

I have so many issues with this propaganda piece I'm not sure where to even start.

A fiduciary responsibility doesn't mean the advisors can't take commission - it just means they need to disclose it.
It doesn't mean they can't help the little guy - it just means they have to put the little guys needs ahead of their own fee structure.
He goes on to claim that if you leave your job, you need to roll over the associated 401(k) to an IRA, and that won't be possible, since you need an advisor to do that, and they won't be able to help you, as fiduciaries. So now you have to pay $1400/yr in 401(k) management fees, all because of this new rule.

If this guy is sincerely afraid of fiduciaries, he needs a face punch. If he's trying to subversively protect his interests against the little guy, he needs a beating.

You guys are a smart group, and I'm willing to reassess my position if I've overlooked something or I'm truly ignorant.


MoonShadow

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Re: Fiduciary rule for advisors means the sky is falling! Or something.
« Reply #1 on: June 07, 2016, 07:05:49 PM »
I'm not in favor of reversing this ruling, but as far as the fee structures, he might be right about a commission based fee structure as no longer being possible for retirement accounts.  The problem is that commissions set up a situation that, well after the fact, the motivations of the adviser can be called into question.  So while the ruling doesn't actually make commissions based advice illegal, there is a really good chance that the legal counsel of these firms will advise them to stop using commission based fee structures on all retirement accounts.  His assertion that this will result in more costs to investors is total BS, though.  I have an adviser that is already a fiduciary, but his annual fee is only 50 basis points on the total value of the account; and the fee structure of all of the "robot-advisors" I've seen so far are even lower.

Vagabond76

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Re: Fiduciary rule for advisors means the sky is falling! Or something.
« Reply #2 on: June 07, 2016, 07:44:25 PM »
He is absolutely right that low-balance account holders will be cut off from advice because it is not worth it to the advisor. We can debate all night long whether that is good or bad, but it is the practical outcome of the DOL fiduciary rule.

MoonShadow

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Re: Fiduciary rule for advisors means the sky is falling! Or something.
« Reply #3 on: June 07, 2016, 10:31:22 PM »
He is absolutely right that low-balance account holders will be cut off from advice because it is not worth it to the advisor.

Wealthfront doesn't charge any fee at all on the first $10K.

Vagabond76

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Re: Fiduciary rule for advisors means the sky is falling! Or something.
« Reply #4 on: June 08, 2016, 04:58:06 PM »
The robos are more like allocators rather than advisors.  What advice do they give???  They basically give the same allocation of funds regardless if one has under $10k or over $1M.

Indexer

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Re: Fiduciary rule for advisors means the sky is falling! Or something.
« Reply #5 on: June 08, 2016, 05:14:49 PM »
He is absolutely right that low-balance account holders will be cut off from advice because it is not worth it to the advisor. We can debate all night long whether that is good or bad, but it is the practical outcome of the DOL fiduciary rule.

Vanguard's new offering charges 0.3%, gives you a fiduciary, and the minimum is $50k. There was a topic about it awhile back.

If you have less than 50k a Target Retirement fund is probably all you need anyway. Minimum is $1,000.

If you don't even have $1,000 you should probably start a savings account.


The idea that the little guy will get screwed is 100% propaganda by the companies like Lynch that have something to lose. The rule says advisors have to act in their client's best interests. When a company says they can't do that on small accounts... read between the lines... they are telling you that they are currently NOT acting in their client's best interests in small accounts.

There is truth in the fact that an advisor can't really make money going in and rebalancing a $5,000 account on a regular basis while also having annual check in appointments, etc. These are the types of things you normally get with a managed account. You probably don't need these things if you have a small account. You probably need someone to point you in the right direction of where you should start saving money. Imagine an advisor charged a flat $100 to talk to someone for an hour, and then say open a Roth, put $5,500 in it every year, and use a 2050 low cost target retirement fund. Sure you could probably spend some time on forums like this one, or just call the average phone rep at Vanguard, Schwab, or Fidelity and get the same information. However, for the people who want to use that local face to face advisor I don't think regulators would be calling foul to charging a flat $100 for that. Instead, you have advisors putting those same people in expensive loaded funds(5% up front) with 12b-1 fees(trailing fees to the advisor), and then never talking to them again. I use to know an Edward Jones advisor with over 2000 clients. Maybe the top 100 client get annual reviews. Most of them were sold a loaded fund and then never spoken to ever again.
« Last Edit: June 08, 2016, 05:17:07 PM by Indexer »

nobodyspecial

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Re: Fiduciary rule for advisors means the sky is falling! Or something.
« Reply #6 on: June 10, 2016, 10:37:35 PM »
Commissions for financial advisers were banned in the UK in 2012 (I think Australia did the same).
The result was halving the number of people using advisers, but a lot more business for high street bank's in house products.

MoonShadow

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Re: Fiduciary rule for advisors means the sky is falling! Or something.
« Reply #7 on: June 11, 2016, 12:47:16 PM »
The robos are more like allocators rather than advisors.  What advice do they give???  They basically give the same allocation of funds regardless if one has under $10k or over $1M.

Not exactly.  There is a questionnaire that tries to both determine your tolerance for risk, as well as your target horizon.  This is exactly what my flesh & blood advisor would do for me as well, for half the cost.

gluskap

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Re: Fiduciary rule for advisors means the sky is falling! Or something.
« Reply #8 on: June 15, 2016, 04:50:23 PM »
I don't understand how under this new rule you wouldn't be able to rollover your 401k to an IRA without an advisor?  Isn't this something that anyone can do by themselves by going to the Vanguard website?  Or is he implying that the common person is so stupid that they wouldn't know how to do this without having a financial advisor?

RosieTR

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Re: Fiduciary rule for advisors means the sky is falling! Or something.
« Reply #9 on: June 15, 2016, 05:58:50 PM »
I don't understand how under this new rule you wouldn't be able to rollover your 401k to an IRA without an advisor?  Isn't this something that anyone can do by themselves by going to the Vanguard website?  Or is he implying that the common person is so stupid that they wouldn't know how to do this without having a financial advisor?

Must be the latter. I've been able to keep my old job accounts with the same fund family but DH had to roll over. It did not take an advisor.

To be fair, a lot of people out there have no idea what they're doing. But having a rule to make the fee structure at least transparent is a good start. The big brokerage houses (Vanguard, Fidelity, etc) often have advisors that will do a face-to-face or phone conversation, for free, with employees in an employee plan. Having a flat fee advisor that is basically a financial coach/counselor for the little guy would probably be far better than all the hidden load fees etc. that were there before. The industry has gotten sorta fat and lazy, all trying to get big fish rather than build relationships with smaller folk, who, if the advisor is actually doing his or her job right, will eventually become big fish.
If you have <$25K you could probably use some advice and it wouldn't take a lot of time. I remember starting out and not even knowing what the hell a stock was, never mind how to allocate a 401(K). Nobody would give me advice. I went to some "retirement account seminar" type thing at work for new employees and they would only talk in vague generalities about "risk tolerance". It's just lucky I like to read and had access to a good library. Not everyone has that kind of interest, or time. Even more recently when the funds made into 6-figure range, I wanted a fee-only advisor checkup and some of the minimums were $500K. I was like, well if I can get to $500K without your help WTF are you going to do after that, except suck earnings away?

randymarsh

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Re: Fiduciary rule for advisors means the sky is falling! Or something.
« Reply #10 on: June 17, 2016, 10:22:38 AM »
He is absolutely right that low-balance account holders will be cut off from advice because it is not worth it to the advisor. We can debate all night long whether that is good or bad, but it is the practical outcome of the DOL fiduciary rule.

But isn't the point that the advice isn't really that good because it's motivated by commissions? That doesn't seem like a big loss. I'm not 100% clear on how the advisor thing works though for 401ks. I didn't think I even had an advisor? I just get a list of ~20 funds and tell HR how I want my money invested.