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Department of Labor Issues New Requirements for Retirement Assets

01.06.17 written by

Earlier this year, the Department of Labor issued a fiduciary rule that will take effect in April of 2017.  At that time, all financial advisors will have various additional requirements that they must meet when they are offering guidance on individual retirement accounts (IRAs), 401(k) assets, and other retirement assets.  One such change is that this will require financial advisors to recommend what is in the best interest of a client, as opposed to what is suitable for the client.

In addition, financial advisors will need to have clients sign a best interest contract exemption that basically says that the financial advisor will act in the client’s best interest, and earn a reasonable compensation.  The exemption also requires clients to learn about fees and conflicts of interest.  This will potentially create additional potential liability for advisors.  This may lead advisors and/or clients to move from transaction-based accounts to fee-based accounts.  This can create a snowball effect for clients, because this type of fee-based account may not be economically feasible for certain firms and, therefore, some advisors may not administer undersized

retirement accounts.  There will also be additional compliance costs and a lot of documentation and monitoring that will need to occur.  This additional cost of compliance may lead to mergers within the financial community.  This is a similar effect as what has occurred in the healthcare industry, whereby smaller physicians have decided that as a result of a significant amount of government regulation, they can no longer maintain their small or solo practices, and, thus, have joined up with larger practices or have become employees of hospitals. 

In addition, these new Department of Labor rules also has various requirements as to the blend of investments that need to be in the retirement asset.  These rules can be complicated and will apply no matter what the size of the retirement asset is.  Therefore, there will be a number of changes that may need to be made.

The next month or so will be a very interesting time as it relates to the presidential election.  Of course, the candidates have a number of differences on various topics including but not limited to these various tax issues.  Citizens will need to be able to educate themselves on these various matters in order to help them make an informed decision when going to the polls to vote for the next President of the United States. 

NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.

James F. Contini II, Esq.
Certified Specialist in Estate Planning,
Trust & Probate Law by the OSBA
Krugliak, Wilkins, Griffiths & Dougherty Co., LPA
158 North Broadway
New Philadelphia, Ohio 44663
Phone:  330-364-3472
Fax:  330-602-3187