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The Fiduciary Rule is Dead – Here's What It Means for Your Retirement Planning

Savage Villoch Law, PLLC — Fri, 15 Jun 2018 14:00:58 GMT

The Fiduciary Rule is Dead! Long Live the Fiduciary Rule!

Well… it didn’t get quite such a commemorative send-off. In fact, it got the sort of ignominious sentence fit for a mongrel animal or a disowned family member. Yes, the Department of Labor (DOL)’s fiduciary rule is dead and it doesn’t look like we’ll be seeing anything resembling a revival. If you have not been following, the demise of the fiduciary rule follows a months-long saga that has gripped the investment industry. If you have been following but you’re a little lost, that’s okay. The events leading to the recent outcome have been full of so many twists and turns it’s easy to lose the trail. We’ll be breaking down what the fiduciary rule was and what it means now that it’s gone. Specifically, you’ll see what that means for you and your investments.

What was the fiduciary rule?

At its heart, the fiduciary rule was meant to essentially expand upon the existing definition of “investment advice fiduciary”, as defined under the Employee Retirement Income Security Act (ERISA). ERISA was enacted in 1974 and basically laid out the parameters for how retirement fiduciaries should be managed. If you are currently enrolled in some sort of retirement savings plan through your employer, ERISA is there to make sure your dedicated retirement assets aren’t being misused. You can learn more about ERISA’s purpose and function here.

What was it supposed to do?

The new fiduciary rule sought to designate all financial professionals handling retirement plans or offering retirement investing advice as fiduciaries. As a fiduciary, a financial professional is held to strict ethical and legal standards. There is much greater accountability as a fiduciary as opposed to a traditional financial salesperson, like a broker. The new rule would have had widespread effects throughout the financial industry, impacting nearly all financial advisors. The fiduciary rule was met with a large outcry from many financial professionals, most notably those working on commissions. If you are saving for retirement though, then this new rule sounded pretty good, right? Brokers and insurance reps would be held to stricter standards concerning your retirement planning. Supporters of the new rule hoped it would increase transparency in the investment world, especially among financial advisors. Retirement investors would be protected from unnecessary investment advice given just to churn commissions. However, financial professionals were not at all happy with it. Many found the rule over-restrictive and costly.

The Drama Unfolds

The Obama-era measure, set to be rolled out between mid-2017 and early 2018, faced all but certain doom from the beginning. Already unpopular among many financial professionals, the incoming Trump administration was also already signaling a desire to review its scope and purpose. What followed was a flurry of memoranda, bulletins and public outcry regarding a delay implementation and pending reviews. The ensuing drama sparked controversy and confusion in both the public sector and professional communities. In an effort to keep the following events in order as they unfolded, we’re going to switch to a bulleted list:

Feb. 2017 – President Trump issues memorandum asking for 180-day delay and an “economic and legal analysis”.
March 10, 2017 – DOL issues Field Assistance Bulletin No. 2017-01 indicating a possible 60-day delay
March 2017 – Ceding to pressure and confusion from the financial industry, DOL opens 15-day public comment period regarding the rule delay.
April 2017 – DOL releases official, 60-day delay on fiduciary rule’s application date.
May 2017 – Labor Secretary confirms the rule won’t be delayed past initial 60-day period.
June 30, 2017 – DOL opens public comment period additional 30 days.
August, 2017 – DOL asks for a 18-month delay to the rule’s compliance deadline. Delay is granted by the Office of Management and Budget.
March 2018 – 5th Circuit Court of Appeals vacates DOL’s fiduciary rule.
April 2018 – DOL allows rehearing date to pass without acting.
May 2018 – Appeals Court denies motions for AARP and the States of California, New York and Oregon to assume defense of the rule.
June 2018 – Final rehearing deadline passes with no action from DOL.

Post-Fiduciary Rule Fallout

So now that you’re up to speed, you’re probably wondering, “Where does this leave me and my retirement planning”? If the fiduciary rule was meant to be an increased safety measure to protect retirements savers from misconduct, what assurances are left? Following this measure’s crushing defeat, it doesn’t seem like the climate is ripe for any similar financial regulations. Unfortunately, this may impact you the most if you are saving for your retirement. Of all the current Obama-era financial regulations currently under scrutiny, the fiduciary rule may have impacted ordinary, individual investors. The demise of the fiduciary rule leaves a considerable void in the investor-protection framework and there aren’t many suitable successors. However, a recently proposed SEC measure addressing investment advice does include retirement savings standards covered in the DOL fiduciary rule. Supporters of the DOL rule are looking at how to make the SEC proposal better for retirement savers. Currently, the official proposal is in 90-day public comments period. If you want to find out more about the proposed SEC measure, click here.

Protecting Your Retirement Savings

The sad fact about the financial industry – whether you invest in stocks or are just saving for your retirement – is that there are people who want to take advantage of you. Using deceitful and unscrupulous practices, they’ll try to dupe you out of your assets. The demise of the fiduciary rule means that you have one less protection in your corner. But you don’t have to go it alone. There are a ton of resources out there that you can use to inform and educate yourself. If you’re saving for your retirement, the best thing you can be is prepared. Make an effort to know not only who is managing your funds, but how they are being managed. Don’t be intimidated by your financial advisor and don’t be afraid to ask questions. Remember: you are in control of your savings and your financial planning. Don’t let anyone tell you otherwise or try to make decisions with out your consent.

Broker Misconduct and Investment-loss Recovery

If you believe that you may have suffered from broker misconduct or have been the victim of investment fraud, contact our team.

Diversified Portfolio Investor or Salad Bar Investor: Which Are You?

Savage Villoch Law, PLLC — Fri, 14 Jul 2017 14:36:39 GMT

You’ve probably heard the term “diversified portfolio” before. The term brings to mind the image of a robust, varied assortment of assets and securities that not only generate generous returns, but act as a cushion against any one stock or security’s downturn. Everyone wants a diversified portfolio, from fledgling investors to seasoned pros. However, there’s a fine line between your portfolio being diversified and it just being a hodge-podge.

Diversified portfolio or salad bar portfolio?

While novice investors are typically more prone to this mistake, even long-term investors can have this problem. Typically, this comes about due to lack of planning. You can’t just start building a diversified portfolio by grabbing anything that comes along. If you just start picking from all over the place, just piling on investments, that is the quickest route to making your portfolio a mess. In a recent article, Forbes refers to this as a “salad bar” portfolio.

What’s a salad bar portfolio?

You’ve probably seen (or maybe you’ve been) one of those the people going down the line at a salad bar, just piling on anything that looks good at the moment. By the time you leave the bar, your plate is loaded down with all sorts of bits and pieces. When its finally all heaped on the plate, then you realize you have way to much of everything and not enough of the stuff that matters. This is where the salad bar portfolio gets its name.

How to build a true diversified portfolio

In the article, Forbes offers up three tips for those seeking to build a true diversified portfolio:

Make value-oriented, efficient investments
Don’t invest based on short term gains
Look at the big picture of a company before investing in it

We offer up an additional bit of advice if you’re investing with the help of a financial advisor. While a financial advisor can provide key insight and guidance in your investing, it’s important to remember that your are in charge of your investments. Some financial advisors or even broker-dealers are incentivized to encourage investments that will get them greater returns, not you. We encourage investors wanting to build a strong, diversified portfolio to set a a practical investment strategy and follow it.

Investor Resources

Read the full Forbes article to learn more about the risks of your diversified portfolio becoming a salad bar portfolio. If you believe you were misled in an investment by a financial advisor or broker-dealer, you may be entitled to investment-loss recovery.

Bad Actors: Tips for Spotting the Financial Industry’s Bad Apples

Savage Villoch Law, PLLC — Fri, 09 Jun 2017 20:33:47 GMT

We’ve all seen bad actors in movies and T.V., but did you know that bad actors can be found on Wall Street and other financial industry institutions? The Financial Industry Regulatory Authority (FINRA) recently released a statement outlining the need for checks-and-balances against bad actors.

What are bad actors?

FINRA defines a bad actor as one within the financial industry “who seeks to evade regulatory requirements and harm investors for their own personal gain”. Essentially, they’re con artists; fraudsters. I’m sure you’re familiar with that old adage about a few bad apples, right? Well, that’s exactly what Financial industry regulators have to say about bad actors. In his statement, FINRA President & CEO, Robert Cook spoke about the danger that bad actors pose to the overall stability in the industry as a whole. Bad actors have the capacity to ruin investor confidence in their broker-dealer and mar the reputation of the entire industry through their actions.

Spotting the bad apples

If you’re involved in the financial industry as an investor, it’s important to be able to spot bad actors. FINRA has comprehensive preventative measures in place to seed-out bad apples but every once in a while, some are bound to slip through the cracks. Here’s some things you should know before doing any business with a new broker-dealer.

License & Registration

No matter what security you’re investing in, make sure your broker-dealer is properly licensed and registered. This means they must be not only a licensed broker, but licensed to do the specific function they are offering to you. The broker must also registered with a licensed brokerage firm.

Account Monitoring

It is especially import to review your monthly account statements. Even if you are a passive investor who prefers to let your broker-dealer make investments as they see fit, you need to monitor your account activity and statements. Watch out for any unusual investments involving large sums, or irregular movement and contact your broker-dealer if you see anything unusual.

Aggressive Solicitation Practices

Aggressive or unwarranted solicitation of services or information should be an immediate red-flag. If you have been receiving repeated calls, emails or requests for correspondence from an individual claiming to be a broker-dealer associated with your account, you need to verify they’re identity.

Investor Resources

FINRA offers comprehensive investor support and resources. Click here if you want to learn more about filing a complaint or other services Contact our investment loss recovery attorneys if you believe you or a family member has been affected by bad actors.

What Investors Should Know About Customer Advisory Centers

Savage Villoch Law, PLLC — Fri, 03 Mar 2017 15:00:06 GMT

Customer Advisory Centers vs. Call Centers

Although they sound similar, customer advisory centers differ from call centers in several important ways. Securities firms and investment broker-dealers typically rely on call centers to handle basic customer service issues and administrative functions. They do not provide investment or trading advice, nor do they earn commissions on trades and deals. Customer advisory centers, meanwhile, are call centers staffed by securities professionals. They are able to provide trade and investment advice as well as sell securities services. A customer advisory center is typically designated to clients with:

Portfolios under $100-250,000
No current assigned broker-dealer

What Investors Need to Know

Customer advisory centers can be a useful resource for securities firms and investors alike. Securities firms can refer casual investors to a center that can handle general investment questions and services while focusing dedicated broker-dealers and advisors on more diversified or high-level investors. Alternatively, they can help investors facilitate transactions and order services without meeting with advisors. Despite the benefits, customer advisory centers do pose certain risks that investor should know about. Customer advisory centers are generally set-up to offer center brokers incentives for selling certain securities and brokerage services. This may give way to practices that may not be within investors’ best interest. Investors should be wary of:

Aggressive sales tactics promoting certain products and services
Attempts to gather irrelevant customer information
The promotion of “no fee” or “no cost” goods and services
Information that is misrepresented or omitted in advice or contracts
Failure to disclose complete cost brackets for goods and services

Investor Resources

For more information on customer advisory centers, check out this FINRA advisory bulletin. If you believe you have received misrepresented information or inaccurate investment advice from a customer advisory center that has resulted in improper fees or investment loss, contact Savage Villoch Law, PLLC to find out potential recovery options.