What the New Fiduciary Responsibility Law Means

When you meet with a financial advisor, you hope that you have found someone you can trust. There is a new fiduciary responsibility law on the table in Washington, because some advisors are, unfortunately, not trustworthy. They may not have your best interest in mind when recommending certain financial products and that may affect your family’s college savings. Are you wondering what this new law means for you? It will affect how financial advisors recommend different investments and how they charge their fees. Here is a list of possible benefits to you if this law is implemented:

More than likely, you will see a fee on every financial product you invest in, but that doesn’t mean it must break the bank. High-fee mutual funds, stocks, variable annuities and life insurance can have hefty fees that may shock you. Many of my clients are very upset when I point out these fees and the dramatic affect they have on their investments. These excessive fees can be very problematic for middle-income families trying to save money to pay for college. The exorbitant fees in some of the investments used to pay for college can be high enough to consume all of their tax benefits. To fully understand the scope of this problem, it would be advisable that you consult a great resource on this issue, The Pervasive Problem of Excessive Fees and Dominated Funds in 401(k) Plans by Ayres and Quinn Curtis.

Instead of directing their clients to high-risk speculative investments, the new fiduciary responsibility law pending in Washington encourages financial advisors to direct investors to lower-risk products that are linked to stock market returns. High-risk and high fees can decimate your retirement and college savings if there is a bad turn in the stock market. If you happen to be stuck with a high risk, high fee 401(k), you should invest up to your company’s match and then invest the rest of your contribution in one of the recommended low risk, low fee investments.

According to The New York Times article, What New Rules on Retirement Savings Mean for Investors, financial advisors will put more emphasis on financial products like immediate and deferred annuities so that you have a more predictable income. Because of the 2008 debacle, where both the real estate and stock market crashed, safety and predictability have become some of the top priorities for most investors. These types of products can bring more financial peace of mind than their more volatile counterparts. Also, predictability makes tax planning easier.

A financial advisor who is a fiduciary will encourage an overall assessment of your financial situation that is in your best interest. Ethically they must not recommend products that are more rewarding to them than they are for you. If the law passes and is implemented by the April 17th deadline, perhaps more families will be better able to entrust their savings to financial advisors who achieve their goals of optimal Retirement and College Plans. If we hold everyone to a higher standard, we should be able to enjoy a much better financial outcome.