Retirement Accounts of Millions of American Workers and Savers Will Be Impacted by New Fed Rule
Saturday, June 10, 2017
A new federal rule change went into effect on Friday, June 9 that effects trillions in retirement savings.
“This is the biggest retirement plan-related rule we have seen in the last 20 years. It has already had a massive impact on the retirement plan industry, and could have a similar impact on retirement plan savers”. –Jamie Worrell, Managing Director, Strategic Retirement Partners.
Will US DOL “Fiduciary Rule” Resolve Retirement Plan Rip-Offs?
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST A lobbying group recently supported the US Department of Labor’s new Fiduciary Rule, which took effect June 9, 2017. (The rule requires financial advisors to act solely in their client’s best interest when dealing with retirement plans, IRAs and Health Savings Accounts. The goal is to leave no room for advisors to conceal any potential conflict of interest, and states that all fees and commissions must be clearly disclosed in dollar form to clients.)
The lobbying group used a large projector to display a “Retirement Rip-Off Calculator” on the sides of some well-known buildings, including the US Chamber of Commerce building in Washington, DC.
Most 401(k)s and 403(b)s are largely invested in mutual funds. These funds hold billions, if not trillions of dollars, pushed higher by contributions from millions of American workers, including 70+ million aging baby boomers, and the replacement of traditional defined benefit pensions with defined contribution 401(k) and 403(b) plans.
Embedded Non-Investment Fees Really Add Up
In the institutional retirement plan space – basically, 401(k) and other employer-sponsored retirement plans -- many employers, HR experts, finance departments, and even employees have been led to believe their retirement plan was "free" because they were not asked to write a check, or did not see an explicit charge. Everything was supposedly "included.”
"In reality, mutual fund firms were embedding non-investment-related hidden fees into their mutual funds. Mutual fund firms found that embedding these "other" costs in their products would help them and the advisor community sell more, without having to explicitly charge for the various services required for each client. Over time, these fees really add up," said Worrell.
"Many of these embedded fees have nothing to do with investing or asset management, and everything to do with compensating advisors, record-keepers, and custodians for their work. This so-called “revenue-sharing” structure has led to a lack of transparency and a muddling together of several types of fees within a mutual fund," he said.
“Clean” Shares Offer Transparency and Reasonableness
"Now, the pendulum is swinging the other way, in the form of a new type of mutual fund called “clean” shares. These are mutual funds that do not have the same high level of extra, embedded, hidden fees," said Worrell.
"Business owners, advisors and employees are well advised to be sure their plan advisor is a fiduciary. To avoid rip-offs, be sure to ask about and understand the fees in your own plan, and ask your advisor what can be done to lower them," he said.
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