Department of Labor threatens IRA accounts

Posted on February 10, 2016 · Posted in Fiduciary, Financial Planning

Of Dinosaurs and commission based IRAs

Do you have an IRA at an insurance company or in a brokerage based account? Many employees of these firms call themselves “Financial Advisors” or “Wealth Managers” but if the Department of Labor has its way, they may be demoted to “salespeople” with regard to retirement accounts such as your IRA. What new rule would this be? The Fiduciary Rule.

Proposals from the Department of Labor (DOL) will effectively ban commission based products for IRAs such as annuities and brokerage based accounts. According to a report by Michael Wong of Morningstar, these new rules may force these firms to remake themselves with much lower profitability or walk away from a very large part of their business.

If the proposals pass in their current form, and there will be intense lobbying from the insurance and brokerage business, there will be winners and losers. According to Wong of Morningstar, the big losers will be the insurers and their annuity businesses and full-service wealth management firms Bank of America’s Merrill Lynch, Morgan Stanley, UBS, Raymond James and Wells Fargo. Among the winners would be independent Registered Investment Advisors utilizing a lower cost approach.

Is this big? Absolutely. Morningstar estimates that $3 trillion of assets would be affected by the rule.

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