If I told you that there was an “Obamacare for Your IRA”, would you rush to sign up?
I didn’t think so… but it may be coming whether you like it or not.
You see, government regulators have started pushing a plan to squash any and all financial and investment advice that it deems “incorrect.” The decision could essentially force financial advisors to forbid recommending to you precious metals, real estate, collectibles — or basically anything the government doesn’t want you owning.
The Labor Department is attempting to expand the definition of “fiduciary” under The Employee Retirement Income Security Act of 1974 (or ERISA). A fiduciary is a person who holds “a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other asset for another person.”
You’d like to think that anyone handling your money should have a clear loyalty to you, but if you’ve been reading these pages for any amount of time, you’d know that just simply isn’t the case. Financial planners, brokers, and the like will more often than not push you into investments that reap higher commissions for them — even if it’s not in the best interest for you.
That’s one reason the Labor Department is arguing that investment advisors should all have to sign themselves up as a fiduciary in order to do business. Considering the current situation, that may not sound too bad on its surface…
Currently, the law says brokers, insurance salesmen, and financial advisors can operate under the “suitability standard”, and are merely required to “ensure an investment is suitable for a client at the time of the investment.” That means they aren’t legally required to divulge conflicts of interests — like the fact that they may be paid more for certain types of investment vehicles.
This contrasts with the “fiduciary standard”, where registered investment advisors and retirement custodians must avoid all conflicts of interest and operate with “full transparency.”
Now, this seems like it would be a great thing for investors. It would basically mean that your retirement advisor would have to put your interests first (imagine that).
But — as is the case with most government mandates — the devil is in the details..
Just to be perfectly clear, I think that more transparency is a great thing when it comes to financial advising. But financial advisors aren’t stupid — they are not going to settle for less money for the same amount of work they’ve been doing.
They’ll simply find other ways to take your money…
In fact, one possible consequence of the new regulations is that individual investors would actually start paying more money for their financial advice, not less. That’s because the rules would take on advisors who charge commission-based fees versus those who charge a flat fee for their services.
Again, this seems like a reasonable approach to taking down the egregious fees that financial advisors charge you. Which I also agree is a good thing, considering how we’re all getting hosed by retirement fees. As I’ve told you before, on average, you shed up to $150,000 of your retirement money on assorted fees from your typical 401(k) alone.
That certainly needs to be addressed, but the government’s new plan isn’t the way to do it…
That’s because these advisors would just go to a flat fee-based system that may box out the very middle-class investors that the law is supposed to protect. Currently, over 30 million households in America rely on investments from commission-based accounts. About 25% of those folks don’t have near enough money to qualify for a flat-fee retirement account.
So essentially, the most vulnerable retirement savers would be priced out of the new structure and pretty much be on their own for retirement advice.
According to Rep. Peter Roskam, R-Illinois, “The road to hell is paved with good intentions. The reality is this regulation would prevent many people from getting any investment advice at all.”
But that really isn’t the worst part…
The DOL actually goes a step further and gives itself the power to decide what is — and isn’t — appropriate for your retirement savings. It has provided an “exemption” for advisors that would like to recommend a limited number of investments with a commission-based structure. As long as you recommend what it likes…
Right now, the Best Interest Contract Exemption, or “BICE,” includes: treasuries, CDs, and qualified ETFs. This leaves out pretty much every alternative asset you can think of, and pushes yet more investors into government debt. And I don’t know about you, but I’m not sold on the government’s ability to invest its money properly — much less my own.
Rep. Roskam said as much while detailing his own experience in Illinois, where the pension system is unfunded by around $111.5 billion.
“I can’t think of a better way to undermine the retirement security of Americans than to push them out of the private sector and into government-run public pension plans that are absolutely failing working families today,” he said.
There is currently a broad coalition of Republicans and Democrats who have joined to fight this rule.
The Competitive Enterprise Institute has released a letter, begging Congress to kill it outright:
“We, the undersigned organizations and individuals, represent millions of Americans in defense of free markets and constitutional liberties. As such, we believe Congress must exercise its power of the purse granted by the Constitution to halt the Obama administration’s executive overreach. This is particularly true when such action by the administration has attracted bipartisan opposition owing to the massive negative effects it would have on Americans’ retirement savings.
We urge you to freeze funding in any spending bill for the Department of Labor’s (DOL) proposed fiduciary rule until the DOL withdraws such rule.
Under the fiduciary rule, the DOL claims authority never granted by Congress to greatly restrict investment choices for 401(k)s, individual retirement accounts (IRAs) and other saving vehicles.
In the proposed regulation, referred to by many as “Obamacare for your IRA,” the DOL doesn’t even bother to hide its contempt for the intelligence of American savers. It says most Americans can’t “prudently manage retirement assets on their own.”
Based on this paternalism, the administration mandates that investment professionals – even if they are serving self-directed investors – must adhere to the government’s one-size-fits-all definition of “best interest” for the investment products they offer. The rule leaves no room for individual savers to decide what their own “best interests” are.”
But me? I’d much rather stay out of this fight all together. I don’t trust the government or Wall Street…
That’s why I don’t even play the game. I’ve been around long enough to know that neither of these parties are fighting for my best interest. They don’t know what’s best for me, my family or my finances. I’ve known for some time that both the government and Wall Street are rigged games, so I do my homework and manage my own money.
Frankly, I trust myself more than any of these people…
I don’t want the government limiting what I can and can’t invest in.
I don’t care whether they charge flat fees or commissions — I don’t want some predatory advisor stealing hundreds of thousands of my retirement dollars by making moves I can easily make myself.
Most importantly, I don’t want distrust and paranoia hanging over me when I do my investing.
That’s why I keep my investing simple, effective, and transparent…
So, if you’d like to completely bypass this rigged system, and avoid both government overreach and bloodthirsty financial advisors, you’re in good company…
