Morningstar Partners with ARA on Fiduciary Standards Program

The partnership is aimed at developing a program that “sets a new standard in fiduciary education and best practices.”

The IRA Fiduciary Adviser education program, being rolled out in partnership by Morningstar and the American Retirement Association (ARA), is designed to prepare advisers for a continuously shifting regulatory environment

“Regulations come, go and change all of the time,” says Brian Graff, CEO of the American Retirement Association.  “While there has been an enormous focus on complying with the Labor Department’s new fiduciary regulation, the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) have both already signaled their intent to introduce additional fiduciary regulations.”

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

As such, Morningstar and ARA warn the professional adviser of the future “must build his or her practice on proven fiduciary adviser best practices that look beyond today’s requirements and that’s what our IRA Fiduciary Adviser program will provide.”

Specifically, the ARA’s IRA Fiduciary Adviser education modules will be integrated with Morningstar Advisor Workstation, “providing not only an immediate access point to fiduciary adviser education but a connection between education and the tools required for the practical application of fiduciary adviser best practices.” 

Jeff Schwantz, Morningstar’s head of adviser and wealth management solutions, North America, explains that responding to the final DOL regulations requires comprehensive enterprise solutions for broker/dealers and advisory firms that are grappling with all of the open questions created by the conflict of interest rulemaking.

The IRA Fiduciary Adviser takes a “practical, utilitarian” approach to fiduciary best practice education, “bringing together a half-century of expertise educating and working with retirement plan professionals and regulatory agencies with a platform that encompasses the latest thinking in professional education delivery.”

“Advisers who work with retirement accounts, particularly IRAs, will need to conform with a higher, and for some dramatically, higher standard of care, but that’s only the beginning,” Graff concludes. “More than education, this program sets a new standard for fiduciary practices that goes beyond the mere letter of the law, elevating advisory practices to an entirely new level of excellence. The right training for advisers will produce the right outcomes for investors. The adviser of the future needs to be ready now, and we are pleased to partner with Morningstar to bring this capability to market at this critical time.”

More information is at www.usaretirement.org

Mix of Pre-Tax and Roth Optimal Retirement Savings Strategy

Contrary to conventional advice, researchers found the largest economic benefits from Roth investments accrue to high-income investors.

Researchers from the University of Arizona and the University of Missouri at Columbia note in a report that an uncertain, progressive tax schedule is the norm in the American economy.

With this in mind, they investigated the optimal savings decisions for investors with access to pre-tax (traditional) and post-tax (Roth) versions of tax-advantaged retirement accounts, using a model that features a progressive tax schedule and uncertainty over future tax rates. While traditional accounts are valuable for hedging retirement account performance and managing current income near tax bracket cutoffs, Roth accounts allow investors to mitigate uncertainty over the future tax schedule. They conclude that the optimal asset location policy for most retirement savers involves diversifying between traditional and Roth vehicles, and, contrary to conventional advice, the largest economic benefits from Roth investments accrue to high-income investors.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

In the absence of tax-schedule uncertainty, Roth investments are primarily attractive for investors with low current income relative to expected future income as a means to lock in low tax rates, the researchers say. However, introducing additional tax uncertainty increases the variability of investors’ future consumption, and Roth accounts eliminate a portion of this risk for investors regardless of current income.

Tax-schedule uncertainty is of great economic importance for the wealthiest investors, the research finds. For these investors, the annual fee to account for tax uncertainty reaches 0.68% for investors with 10-year time horizons and 2.10% for investors with 30-year horizons. Fees for investors with relatively low current incomes are small since these investors tend to utilize Roth accounts whether or not they face tax-schedule uncertainty. However, investors with higher current incomes focus primarily on pre-tax investments to avoid taxes now, while ignoring tax-schedule uncertainty. “These results stand in direct contrast to popular investment advice that instructs wealthy investors to avoid Roth accounts. Our analysis shows that for these investors, tax-strategy diversification is particularly attractive, despite their high current marginal tax rates,” the researchers wrote in their report.

The researchers note that Roth account usage is low among participants who are offered this option. They feel this may be due to a lack of education.

“Our results are of practical importance to employers and regulators who determine the retirement savings options available to employees. In particular, broadening access to Roth versions of workplace accounts would provide investors with important tools for managing their exposures to tax risk,” the researchers conclude.

The research report may be downloaded from here.

«