10 Updates

Is Your Financial Advisor Conflicted?

May 6 2014, 9:22pm CDT | by

Watch out: that broker-sold mutual fund or IRA rollover move might not be in your best interest. Why? Broker-dealers must have reason to believe that an investment they recommend is suitable for you...

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12 weeks ago

Is Your Financial Advisor Conflicted?

May 6 2014, 9:22pm CDT | by

Watch out: that broker-sold mutual fund or IRA rollover move might not be in your best interest. Why? Broker-dealers must have reason to believe that an investment they recommend is suitable for you. By contrast, a registered investment adviser is held to a higher “fiduciary” standard of putting clients’ best interests first.

In advance of new proposed Department of Labor rules to protect retirement savers from salespeople expected this summer, a group of consumer advocates met in Washington, D.C. today calling for action on the problem of sales pitches dressed up as financial advice.

“When investors are steered into products that have higher costs and unnecessary risks, investors suffer very real financial harm,” said Barbara Roper, director of investor protection with the Consumer Federation of America. “It’s harm that’s pervasive and has a material impact on their ability to save for an adequate and decent retirement.”

The problem as the consumer advocates see it is that some financial advisers are free to put their own financial interests first, recommending investments that generate extra money for them, even if those investments are not the best choice for the consumer and will leave consumers poorer.

Where is the evidence of harm? Sheryl Garrett, a fee-only planner and founder of Garrett Financial Planning Network, told a horror story of dozens of telephone company middle-aged employees offered early retirement. They worked with a self-proclaimed “retirement specialist” who had them basically trade in their employer-provided defined benefit pension plan for an expensive variable annuity contract, costing them a 10% tax penalty, and 2.4% a year for the annuity.

The specialist pocketed a fat commission, but the annuity didn’t pan out. Now in their 60s, the folks are back at work trying to make ends meet. The DB plan would have meant a guaranteed income stream for life. “Cashing in a DB plan that was in great shape is close to insanity,” Garrett says, adding, “If she had variable annuity salesperson tattooed on her forehead, this wouldn’t have happened.”

In light of these issues, the DOL is considering whether to expand the circumstances in which financial professionals have a fiduciary duty to their clients, by updating rules that date back to 1975. The change is especially urgent today as workers have increasing responsibilities towards managing their retirement money in 401(k) workplace plans and individual retirement accounts. The DOL rolled out a fiduciary proposal in 2010, but it was attacked by the financial industry as being unworkable.

“An update of the existing regulations is long, long, overdue,” said Shaun O’Brien, assistant director of public policy with the AFL-CIO.

In the meantime, the Securities and Exchange Commission has said it will make a decision about whether to go forward with similar fiduciary rules that are expected to be more industry-friendly (it’s had a rulemaking in the works since 1999). Roper dismissed the idea that the DOL should step aside and defer to the SEC.

But the Consumer Federation of America, along with other consumer groups including AARP and the CFP Board, urged the SEC to make a move by the end of the year in an April letter showing evidence of investor harm from the suitability standard instead of the higher fiduciary standard.

In the case of broker-sold mutual funds, there are often cheaper, equivalent mutual funds, for example. And while there’s a huge sales push for individuals to roll over 401(k) money into retail Individual Retirement Accounts, in many, if not most cases, workers would be best served by keeping their money in their former employer’s plan or transferring it to their new employer’s plan. Employers are required by law under to manage their plans in the best interest of their plan participants.

Want conflict-free financial planning advice? One place to start is by searching for a fee-only planner at the National Association of Personal Financial Advisors at Napfa.org.

And if you’re confused about the differences between a broker-dealer, an investment adviser, and a registered rep, FINRA (the industry’s self-regulatory arm) has a cheat sheet on selecting investment professionals, including a broker disciplinary record look-up tool, here.  Just be warned, the current system is hardly transparent. Individuals who work for broker-dealers—the sales personnel whom most people call brokers—are technically known as registered representatives, and registered reps may also go by such generic titles as financial consultant, financial advisor, or investment consultant.

The bottom line: just because someone calls themselves an “advisor” doesn’t mean they have to put your best interests first. At least for now.

See also:

10 Questions To Ask A Financial Advisor

 
Update
10

7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

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KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken into by robbers. ...
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Update
8

7 weeks ago

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Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was reje ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

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Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the southern states la ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Datuk S ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocation of RM20 m ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Bazaa ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

8 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara Skyway (Kidex ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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