A new frequently asked questions publication from the
Department of Labor (DOL) seeks to inform investors about their rights as
consumers of products and services governed by the Employee Retirement Income
Security Act (ERISA).
The document, in turn, gives advisers an important look into
the consumer-protection thinking that has played an important role within the
DOL’s fiduciary reform efforts.
“While many investors think that their financial adviser
already is required to act in their best interest, like their doctor or their
lawyer, the law hasn’t always required it,” DOL explains. This is likely to
change with the forthcoming DOL
conflict of interest reforms—slated to take effect in April of this year unless
the new Trump Administration and the Republican-controlled
Congress act quickly to stop it.
“After April 10, advisers who are paid to make
recommendations about retirement accounts, such as individual retirement
accounts [IRAs] and 401(k) accounts, will be treated as fiduciaries,” DOL tells
consumers. “This includes advisers who are paid directly by you or paid
indirectly through commissions or other payments they may receive from third
parties.”
On the question of whether the rule is expected to “cause
change in the financial services industry,” the DOL answers with an unequivocal
“yes.”
“Although many advisers already work hard to give sound
advice that puts the customer first, the new rule will generally make best
interest advice the law,” DOL suggests. “Also, the rule will require many
financial institutions to significantly change their compensation practices. The
financial services industry will not be permitted to use incentives such as
quotas, bonuses or prizes that encourage advisers to make recommendations that
are not in your interest.”
“These loopholes exposed many working families, and
especially IRA owners, to conflicted advice,” DOL suggests. “Before the rule,
some financial advisers could give retirement investment advice that was not in
their customers’ best interest. Many advisers, such as securities brokers or
insurance agents, had financial incentives that rewarded them for steering
customers to products that were not in the customers’ best interest.”
DOL says it has made the push now to strengthen and expand
the fiduciary standard because, over the last few decades, the lasting push
away from defined benefit plans in favor of defined contribution arrangements
has put the onus on individuals to monitor the fairness of their own service
provider fees.
“These individual investors are not investment professionals,
and commonly depend on advisers to make important investment decisions,” DOL
continues. “But these advisers often have strong financial incentives to
recommend investments that result in a larger financial benefit to the adviser
but may not be in their customer’s best interest. Recent research has found
that advisers’ conflicts cause real harm to ordinary investors who rely on
their advice.”
DOL further suggests “this broken regulatory system was
costing some working families tens of thousands of dollars of their retirement
savings.”
“While many financial advisers acted in their customers’
best interest, not everyone was legally obligated to do so,” DOL concludes. “This
rule levels the playing field, and makes sure that all retirement advisers
follow the same standards. America’s workers should be able to retire with
dignity after a lifetime of hard work and getting fiduciary investment advice
will make it easier to reach this goal.”
Morningstar Expands Executive Leadership Team; Mercer
Advisors Acquires Novos Planning Associates; FPA and T. Rowe Price Launch
Active Management Educational Initiative; and more.
As chief product officer, Rothschild is responsible for
product strategy, innovation, development, and execution. She joined the firm
in 1993 as a fund analyst and later served in leadership roles across research,
products, and business development. Most recently, Rothschild was head of Global Advisor Solutions. She holds the Chartered Financial Analyst (CFA)
designation and sits on the board of directors of Y-Charts, a financial
terminal provider based in Chicago.
Dunn joined Morningstar as its first chief revenue officer.
He led the company’s sales philosophy, strategy, and execution. Beforehand,
Dunn held several sales leadership roles at IBM. Most recently, he served as
vice president of IBM’s Midwest enterprise unit, responsible for sales,
marketing, strategy, and customer service in the region for the complete IBM
portfolio including cloud, software, services, systems, and IBM Credit.
“We have a deep bench of talented leaders at
Morningstar, balanced between long-tenured individuals who know the company
inside and out as well as relatively newer executives who bring a diverse set
of experiences across industries and geographies,” says Kapoor.
“While our mission remains the same, we have new opportunities in 2017 and
beyond to further develop our offerings to serve today’s investor.”