In case you thought your broker had to put your interests before their own money-making interests. Nope.
But that could soon change.
“Brokers who recommend retirement-account investments would have to put their clients’ interests ahead of personal gain under rules expected to be endorsed by the Obama administration as soon as next week” – WSJ
Here’s how it works now: you meet with your broker, they recommend an investment that is “suitable” for you (either for your retirement account or money you have invested outside of your retirement account).
Suitable, being, they have to direct you to investments that are “suitable” for your investment objectives that you discussed with them. Ok fine. That sounds legit.
But here’s the problem:
“A White House memo argues that investors lose as much as $17 billion annually in retirement dollars—or “at least” 5% to 10% of their retirement savings over 30 years—because of “excessive fees” and “conflicted” advice—amounts disputed by the industry.”
The main issue is that there is a huge difference between recommending investments to clients that are just “suitable” (i.e. are in alignment with their investment objectives) and requiring brokers to act as a “fiduciary.”
Requiring brokers to act as a fiduciary means that even if they recommend a “suitable” investment, they also have to put the clients’ interest first before their own.
Translation: they would no longer be able to offer just “suitable” investments to you (that charge you high fees) if there’s a comparable “suitable” investment they can offer you that charges you less in fees, because that is putting their own interests before yours.
This of course means less money for brokers, and brokers are not happy about it.
Just to be clear, new rules….
“won’t bar commissions for those who sell retirement investments but would ensure brokers and other financial professionals have an overriding responsibility to keep their clients’ best interests when giving financial advice.”