Proposed Rule Change Protect Investors Retirement Funds From Abusive Brokerage Firm Sales Practices

The proposed rule change proposed by the Department of Labor (DOL) are directed towards a multi-trillion dollar industry IRA Rollover industry from employer sponsored retirement plans to accounts held with brokerage firms. The new rule will afford IRA account holders the same protections when the funds were held in a company 401(k). For financial advisors who receive commissions from investments they sell, the recommendations would be required to meet a higher fiduciary standard.
The higher standard referred to by the DOL rule change is known as the fiduciary standard. A financial advisor who provides investment advice in compliance with the new fiduciary standard is required to act in their client’s best interests, including the avoidance of any conflicts of interest and to provide full disclosure of any business relationships which represent potential conflicts of interest. The DOL’s new proposed rule will create a financial advisor’s fiduciary duty for transactions that include, any recommendation to take a distribution from a company retirement plan as an IRA rollover, or keep the retirement account balance with the company retirement plan because it is in the client’s best interest. Any breach of the fiduciary duty by the financial advisor with result in a Financial Industry Regulatory Authority (FINRA) sales practice violation. The DOL rule will be the first federal regulation to broaden the fiduciary standard to include 401(k) or employee plan rollovers and IRAs. Under current laws commissioned-based financial advisors are only held to the suitability standard rather than the fiduciary duty which provides greater investor protections.
Under the new rule brokerage firms and its financial advisors have to disclose whether putting their money in an investment vehicle, such as an IRA Rollover into a variable annuity would have higher fees. A commission-based financial advisor would require written contracts clearly stating any fees, conflicts of interests and provide information to increase transparency so that clients would know the differences in costs between alternative investments. The most instances, investment recommendations by financial advisors are motivated by differences in compensations which lead to conflicts of interest which must be disclosed to protect investo rights. If it is not in the client’s best interest to move the retirement funds out of the employer-sponsored plan, under the new DOL rules it should be left alone. The profit motives of firms cannot and should not drive the decision to move an investor’s retirement savings out of the employer-sponsored plans. There is a real retirement crisis in the United States with the foundation of Social Security uncertain, IRA accounts are relied upon more than ever. The intention of regulators is to take the money out of financial advisors’ pockets and put the money back into retirement accounts where it belongs.
Klayman & Toskes, PA is dedicated to the rights of investors and strongly believes that when investors retire and have to decide what to do with their retirement funds in their employer-sponsored retirement plan, they seek advice from financial advisor with the expectation that the advice they receive will be in their best interests. Under the new DOL rule, when investors are advised to move their money into IRA rollover accounts managed by a financial advisor, it is essential that the brokerage firms and its financial advisors are held to the highest standards to help protect the retirement savings of Americans everywhere.

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