#264 Fiduciary: The F-Bomb About to Hit Retirement Plans

As the Department of Labor prepares to roll out new rules, which would require investment companies, brokers and advisors to put the interest of retirement savers first, our guest Ray Ferrara, former Chair of the CFP Board, joins us to discuss the fiduciary standard and why the financial services industry should embrace, not fight it. Ray has been one of the key players involved in the national debate surrounding the rules that should govern financial advice and was one of the experts who testified before The Employee Benefits Security Administration, the DOL division responsible for spearheading the change. We began the conversation with an explanation of the proposal, which would require that retirement investment professionals not only be held to a higher standard of putting clients first, but they would also have to fully disclose and eliminate conflicts of interest that exist.

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The Financial Planning Coalition, a collaboration of the Certified Financial Planner Board of Standards (CFP Board), the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA), strongly supports the DOL’s proposed rule and notes:

"Retirement investors face a perfect storm in the financial services marketplace. With ever-increasing responsibility for their own retirements and the need to choose from an increasingly complex set of financial products and services, retirement investors more than ever need competent financial advice that is in their best interest. Yet the current regulatory framework allows advisers’ interests to be misaligned with the interests of retirement investors; it does not require advisers to clearly and openly disclose the standard of conduct under which they operate or their actual or potential conflicts of interest; and it permits market practices under which retirement investors are simply unable to distinguish advisers who provide fiduciary-level services from those who do not."

This rule could be a game-changer for the industry. No longer will companies be able to sell opaque, expensive products that once were deemed "suitable" but will not pass the fiduciary smell test. And if you hear complaints from the industry, saying that the rule will mean that they will no longer be able to serve the middle class, I say, THANK GOODNESS! That means that they can no longer peddle their expensive, clunky products, like variable annuities or non-traded real estate investment trusts. And if they choose to raise minimums or fees, consumers have plenty of choices, like services offered by Betterment or Rebalance-IRA, which offer ease and simplicity at a fraction of the cost that those big firms charge.

Thanks to everyone who participated this week, especially Mark, the Best Producer in the World. Here's how to contact us:

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Financial Thanksgiving 2015

Thanksgiving is a time when we count our blessings. In addition to the big stuff, I like to use the opportunity to give thanks to the resources and organizations that improve our financial lives. The Financial Planning Coalition, a collaboration of the Certified Financial Planner Board of Standards (CFP Board), the Financial Planning Association (FPA), and the National Association of Personal Financial Advisors (NAPFA) has provided a strong and unified voice promoting the recognition and regulation of financial planners and increased investor protection. The big task that the Coalition has been trying to tackle is to educate policymakers and consumers about the importance of advice that is in the best interest of the client—the so-called fiduciary standard.

The coalition’s tireless efforts may soon pay off…next on my list of thanks goes to the United States Department of Labor, which is expected to finalize rules that would require financial advisors of all retirement accounts to put customers first. Although the industry has fought hard to thwart the initiative, most believe that it will survive. Its enactment would amount to the biggest changes to the Employee Retirement Income Security Act (ERISA) since that law was drafted more than 40 years ago.

Thanks too must go to technology, which has greatly enhanced the ability to better manage personal finances. Mint, You Need A Budget (YNAB) are among the many free apps that help you keep track of your money, while Acorns and Level Money help you budget and then find even the smallest dollars that you can save or invest.

And a tip of the hat goes to the innovators of financial technology, like the folks at Betterment, Wealthfront, Motif investing and MarketRiders, who have introduced a cost efficient way for investors to better allocate and manage their investments and retirement accounts.

There are also plenty of terrific tools available to help people with their financial lives. The EBRI Choose to Save Ballpark Estimate is an easy to use calculator to help quantify retirement savings needs, FinAid is the go-to site for students and their families to help understand the various ways to pay for college; and LifeHappens helps families understand their life and disability insurance needs.

I am often asked about which financial blogs that I use to augment the multitude of publications that I need to do my job. I am thankful for the terrific work of Bill McBride of the Calculated Risk blog. In addition to his wise insights about the housing market, Bill has a wonderful way of providing much need context to a world of economic numbers. I am also grateful for Barry Ritholtz’ “The Big Picture”, with its great mix of information, humor and a healthy dose of skepticism. Although a bit wonkier, I always learn from economics professors James D. Hamilton and Menzie Chinn, who are the brains behind Econbrowser and Mark Thoma of Economist’s View.

What would I do without economic resources, like the Federal Reserve Bank of St. Louis’s Reserve Bank FRED blog, with its nifty charting features; the Federal Reserve Bank of New York’s research on Household Credit; the Bureau of Labor Statistics’ historic databases; the Bureau of Economic Analysis’ interactive data; and the IRS’ rich web site? The people at these organizations have also been incredibly generous with me.

On the research front, the folks at Pew Research Center, the Center for Retirement Research at Boston College and the Georgetown Center on Education and the Workforce are producing some of the most interesting and useful publications, which help me in my job every day.

And finally, the greatest thanks goes to you—the readers, listeners and viewers, who take time out of your days to absorb my content and who generously provide commentary, both and good and bad. To quote Alice Walker, the words thank you “expresses extreme gratitude, humility, understanding.” On this Thanksgiving, thank you.

Financial Thanksgiving 2014

Thanksgiving is a time when we can give thanks for all of the blessings in our lives, like health, loving spouse, a wonderful family and amazing friends. But this is a money column, so this week, I would also like to give thanks to all of the amazing people and resources that have improved our financial lives. The Financial Planning Coalition: The collaboration of the Certified Financial Planner Board of Standards (“CFP Board”), the Financial Planning Association® (“FPA”), and the National Association of Personal Financial Advisors (“NAPFA”) continues to work on behalf of consumers to make the fiduciary standard the gold standard for financial advice-givers.

The Employee Benefit Research Institute (EBRI): The mission of EBRI is to contribute to, to encourage, and to enhance the development of sound employee benefit programs and sound public policy through objective research and education. EBRI has also developed an easy to use retirement calculator, which I wholeheartedly endorse.

Life Happens: While I have been a critic of some of the practices of the insurance industry, this nonprofit, founded by seven producer organizations, is dedicated to helping Americans take personal financial responsibility through the ownership of life insurance and related products, including disability and long-term care insurance. Of particular interest is the Life Happens Insurance calculator.

Mark Kantrowitz/FinAid.org: Mark created this terrific web site for education funding in the fall of 1994 as a public service. It is the quintessential resource for every would-be college student, providing informative, objective and valuable advice for students and their families, who are looking for ways to finance their education.

SSA.gov: I know that everyone complains about the Social Security system, but the government’s web site is a great tool. You can manage your account online and use the estimator to determine your future benefit.

Jack Bogle: When he was a junior at Princeton University in 1949, Jack Bogle decided to use the concept of index funds as the topic of his senior thesis. That decision eventually led to the creation of the modern index fund. In 1976, The Vanguard Group – then a new mutual fund company – rolled out the First Index Investment Trust, which ultimately became the Vanguard 500 Index Fund. The fund, which was originally referred to as “Bogle's Folly” has become the single best friend to retail investors.

AnnualCreditReport.com: In the aftermath of the credit boom and bust, there were singing pirates and a myriad of online offers to help consumers take control of their credit histories, but there was only one official site, guaranteed by Federal law, where you can obtain a free credit report annually.

Consumer Financial Protection Bureau (CFPB): The CFPB was created out of 2010’s Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFPB consolidated most Federal consumer financial protection authority in one place and focuses on one goal: watching out for American consumers in the market for consumer financial products and services. Although various regulators had consumer divisions, none has the sole focus of keep an eye out for us. The CFPB works to give consumers the information they need to understand the terms of their agreements with financial companies. They are working to make regulations and guidance as clear and streamlined as possible so providers of consumer financial products and services can follow the rules on their own.

Ann Marsh: Since we have just celebrated Veterans’ Day, I would like to highlight the work of Financial Planning Magazine’s Senior Editor and West Coast Bureau Chief. Ann’s phenomenal work highlighted how financial problems are weighing on our servicemen and servicewomen, and in some cases, contributing to suicide. Please read her article and if you are interested in supporting our veterans, please check out www.giveanhour.org, which is in the process of considering launching a financial planning arm of its services and www.psycharmor.org, which is putting together a new network of private sector professionals to help soldiers and vets, including financial planners.