The new U.S. Department of Labor (DOL) regulations require financial advisers to act as fiduciaries, and (in other words) always put the client’s interests first (before their own) when it comes to retirement funds. This includes 401(k) plans, IRAs, Rollover IRAs, etc.
Fiduciaries must disclose any commissions paid to the advisor, all fees the client pays, a comparison of fees showing what the client pays currently to what he/she would pay using the investment the advisor recommends. There would also need to be a solid, disclosed, documented reason why an advisor would recommend a higher cost investment. That higher cost must be reasonable and justified by the additional quality, service, liquidity, transparency, other savings, and so forth.
An advisor cannot make more money by putting retirement funds in one investment or allocation than any other investment. That is, the advisor must charge a flat fee unless they are willing to jump through substantial hoops. Trump has allowed delayed imposition of some of these rules until 2019, but most advisors are currently working to comply with the inevitable.
Already, because of the rules, many financial advisors are ditching commission-based business models. The best non-self-serving approach is a flat fee, using low cost index ETFs and getting away from commission based broker/dealers in favor of joining a registered investment advisory firm (RIA). Note: iSectors suite of 15 index based ETF asset allocation models are a great solution.
Note: iSectors’ suite of 15 index-based ETF asset allocation models are a great solution.