Department of Labor Fiduciary Rule or None, Retirement Planning Still Has Principles

  PARSIPPANY, NJ - 11/17/2017

The Department of Labor’s (DOL) recent passage of its new Fiduciary Rule has caused a bit of a stir in the financial services community. The rule has many implications, among them binding advisors who work with retirement planning, both legally and ethically, to do what is in the best interest of their clients. While there is little debate about that aspect of the rule, one portion that advisors are scrutinized a bit more closely is the way that these rules may be interpreted to identify conflicts of interest and reduce or eliminate commissions.

“There is definitely a lot of conversation happening around the new rule,” says Thomas O’Connell, principal of International Financial Advisors, a financial services firm headquartered in Parsippany, New Jersey. “Commissions are a big focus of the talk because they’ve largely been spoken of as though they’re inherently negative. But many types of employees work on commission and as long as they are serving the best interest of the client and the client is getting what they expect out of the deal, it may not actually be as big of an issue as it’s being made out to be.”

An August 14, 2017 report by Investopedia notes that though the rule expands the definition of an “investment advice fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA).[1] This has the effect of elevating all financial advisors who work with retirement plans to fiduciaries, who are held to a higher standard than other advisors. Taken to its furthest extent, the rule could effectively eliminate commissions altogether and cause other changes that can potentially cost the financial services industry $2.4 billion, the report continues. This may be particularly hard on smaller firms who may not be able to comply with the rule quickly enough.

Whatever effect the rule has on the industry, for clients, the end goal is to save money and preserve their legacy as they move into and through retirement. “The biggest questions clients ask are ‘Do I have enough money for retirement?’ and ‘Will my savings last through retirement.’ While the amount each person needs will vary, the principles that govern whether they have enough remain the same.”

What are those principles? Making the same dollar do double the work is one and reducing taxes is another. Cash value life insurance policies may be one place where clients can kill two birds with one stone. “Life insurance is one good place to get more value from a dollar. Depending on how the plan is structured, it can be a very good savings vehicle with good returns and little risk of depreciation,” says O’Connell. “A properly structured plan can also help an individual save on taxes, or at least have them deferred, which allows the money to grow at a better rate. It’s really a better financial boon than a 401k.”

A good process for selecting and evaluating financial decisions is also essential to the planning process. O’Connell, who currently serves on the Board of Directors for the New Jersey Better Business Bureau, notes that a sound approach has four parts: discovery, strategy, implementation, and evaluation. Missing any of these crucial steps can mean losing out on maximum financial performance. “Every part of the process has its purpose. Discovery is essential to figuring out what to do, strategy is figuring out how to do it, implementation is doing it, and evaluation determines whether it’s working,” O’Connell goes on to say. “Eliminating one of those can mean missing out on earnings or continuing with investments or products that may have looked good on paper but aren’t actually working.”

Another important principle of retirement planning is to manage perception versus reality and ensure the two mesh. “A generation ago things looked a lot different in the retirement landscape and people often have outdated and unrealistic views of what retirement will look like,” O’Connell warns. He notes, for instance, many people believe they’ll be able to continue working past retirement—most don’t. As well, many people also believe that employer-provided retirement benefits will play a bigger role than they often actually end up playing. Understanding the landscape and managing expectations is a large part of the retirement planning process that can ensure clients make the best decisions for themselves.

Offering up this type of advice may come under a new kind of scrutiny under the DOL’s new rule, and how it ends up affecting those offering retirement financial services remains to be seen. Whatever the rule’s affect, there is no replacement for sound financial and retirement planning advice and the endgame is still to support the client. “When an advisor has a passion and desire to help others build and keep more of their money it shows,” O’Connell remarks. “Commissions or none, every advisor’s goal should be helping the client build their money and keep more of it for themselves.”

Investment Advisory services are offered through Comprehensive Capital Management, Inc., (“CCM”), a SEC-Registered Investment Advisor. Securities offered through Comprehensive Asset Management and Servicing, Inc., (“CAMAS”), a registered broker/dealer. Member FINRA/SIPC/MSRB. Route 46, Suite 506, Parsippany, NJ 07054, Phone (800)637-3211. International Financial Advisory Group, Inc. is independent of CCM & CAMAS.  tjoconnell@internationalfinancial.com

[1] http://www.investopedia.com/updates/dol-fiduciary-rule/