There’s been a lot of talk about the new federal Fiduciary Rule. We check in with Kathy Dixon, vice president and trust officer with Chemical Wealth Management in Traverse City, to help put the change in perspective.

The name Fiduciary Rule sounds pretty vague and broad and, yes, boring. Can you give us a little thumbnail description of what it does and why it’s important?

Basically, what it means is anybody who provides investment advice on retirement accounts—like 401Ks and IRAs—for a fee must shift the standard of advice from being “suitable” for the client to being in the “best interest” of the client. “Best interest” is the standard that trust officers have long had to adhere to, but people who sell financial products, like brokers and insurance people, have not had to meet the fiduciary standard until now.

Where is the impact of this going to be seen?

Financial professionals will have to demonstrate that they are giving advice that’s in the best interest of the client. And that will involve a certain amount of paperwork. You have to show you evaluated the client’s risk tolerance, save-ability, their ability to recover from market downturns. And you have to show that your advice fits that profile. Also, the transaction has to be much more transparent. The financial professional must disclose in dollar amounts all of the fees going to the broker. A lot of times investors have no idea what their costs are. You’ll also see the business move to a fee-based business and away from a commission-based business. We’ve heard that some financial services firms claim that the paperwork is so much that it will force them to stop serving smaller customers, say, those with less than a million dollars under management.

Any thoughts on that?

Yes, the brokerage firms are saying that, and they say it’s unfair to small investors because they won’t have access to better investment opportunities. But we are seeing online services—called robo investing—coming in to fillll the gap. These services have you fill out a questionnaire and process the information through computer algorithms and make investment decisions based on that. It’s a lower-cost way of investing and the results are comparable, and it’s very transparent.

It sounds like the transparency aspect of this is important to you.

I feel transparency is always good. As I said above, I’ve seen so many cases where the investor has no idea what fees and commissions are being paid. When I see a situation where a tax deferred investment is in an account that is already tax protected … that doesn’t make sense and it makes you wonder why would an advisor make that suggestion other than because of a sales commission.

Where do things stand now with the new federal Fiduciary Rule?

The new regulation went into effect June 9, and it’s in a transitional period. It will be fully in effect January 1, the caveat being that the Trump administration delayed implementation once already, so there’s a possibility we might see some attempts to modify the rule before then. There is more in-depth information on this, available on the web for those who want to research more.

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