By David Schaeffer

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We have all heard the phrase “throw every-thing against the wall and see what sticks.” Well, our new President made a bunch of promises in the campaign and got himself elected. Many promises sounded good to some; to others, not so much. Our clients’ emotions on the new President range from exuberant to completely freaked out and scared.
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We can all agree, there has been a frenzy of activity in the first weeks of the new administration. Every news cycle has Trump this and Trump that. So much attention, that it was almost like the Super Bowl (what a game!), the Phoenix Open, and our car shows didn’t even happen.
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The market is in a flurry. Up, Up, Up! By almost all accounts the optimism concerning
the markets and consumer spending is very positive. Stories of large employers adding
jobs in the good ole USA abound.
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Our President lets us know his feelings, unfiltered, immediately, via his twitter feed. If you don’t follow twitter, don’t worry… the television news folks will do it for you.
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More importantly, what is not being talked about is the Department of Labor’s fiduciary rule for financial services. It is scheduled to go into effect April 10, 2017. This law will impact every person in the United States with qualified accounts including, IRAs,401k, 403b, 457/TSA, and Roth IRAs. This
rule was created in the spirit of improving the financial care of our citizen’s lifelong savings.
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Unfortunately, this law will force firms to charge more for their services and provide
less choice of investment options. Completely the opposite of the intent of the legislation.
Small investors with accounts less than $1,000,000 will find themselves moving to automated investment services because the cost of compliance is too great. We all have or had mutual funds, the autopilot investments of the past. What happens to your accounts when the market drops? What happens to your income if those accounts lose your money?
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The estimated cost to comply with the new law may be as much as 2% on a small account. Most folks don’t pay even 1% to manage their entire portfolios. Something will have to give; you will either have to pay more or use a robot.
manage their entire portfolios. Something will have to give; you will either have to pay more or use a robot.
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We have never charged our clients for planning services, account reviews, phone calls, changes, account updates, balance inquiries, disbursement requests, mailing statements, going to social security office with you, or exceeding every fiduciary standard of care.
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If the law is not repealed, folks will experience far fewer savings and investment choices for their IRAs and incur new fees that may exceed earnings!
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I really don’t think that was what the past administration had in mind. The story goes, Mr. Obama’s neighbor had all of his lifelong savings in a variable annuity, the type that did not insure his principle and had fees in excess of 3.5% per year. When the market dropped in 2008, his neighbor lost nearly 50% of the value of his annuity. His broker was no longer in the business. He assumed the big-name brokerage firm had an eye on his account. The reality was no one was looking after his money. Mr. Obama looked into it and found that the broker was really a licensed salesman and did not violate any rules. He just did what the firm requested of him. In reality, he was not acting in his neighbor’s best interest, he acted in the best interest of the firm. Mr. Obama asked around and found that there was a type of financial advisor that was licensed to act in the client’s best interest. He then asked the SEC to do something. They did nothing. He asked his friends at the Department of Labor and they acted, creating a rule to protect the average investor. Unfortunately, they failed to ask about the cost of such financial care. Kind of like the “not so” Affordable Care Act. (Sorry. I could not help myself.) To affordably take on the legal responsibility of fiduciary care, most portfolios must exceed 5,000,000 dollars to avoid additional costs above the standard 1%.
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So here we sit, a rule created to care for LARGE portfolios, forced upon most Americans with a portfolio of less than $100,000, but being required to bear the cost of a portfolio 50 times larger.