Join Washington Post nationally syndicated personal finance columnist Michelle Singletary for an online discussion.
Should the financial professional helping guide your retirement investments act in your best interest?
You may be surprised to find financial professionals don't have to meet that standard. Join me live to discuss the Department of Labor’s fiduciary rule, which which is slated to take effect April 10 — although the Trump administration has signaled that it may look to delay the implementation.
Send your money questions in early!
Read up on the discussion:
Should your financial adviser act in your best interest? You decide.
Is your adviser truly protecting your retirement?
It’s too late for Trump to stop this financial rule
What questions can I ask my advisor to see if he or she is acting in my best interests? What are some clues that I can seek?
First and foremost just ask if they are willing to act in your best interest and get their answer in writing. If your advisory is not willing to make you number one, and answer your question directly, it's time to look for a new adviser.
You should also ask about what commissions and fees the advisor will earn if you select the product he or she recommends. Be sure to ask how much they will make now and how much they will continue to make if you choose to stay in the investment. Be sure to get that in writing, too.
It's your money -- take care of it!
A stock broker told me that once the DOL rule takes effect that the fee structure for IRAs will be a percentage of the value of the assets UNLESS the IRA owner notifies the firm managing the IRA and states that I want my account to be grandfathered because I do NOT want to be charged a fee based on the value of the assets. Is this correct, assuming the pending rules do go into effect? What responsibility do firms have to provide clients in writing a notice about this policy/rule?
If you own an IRA now, you will not be forced under the fiduciary rule to be charged a percentage of your assets. Your IRA provider should give you in writing appropriate disclosures about any changes in fees, but again, the new rule does not require existing IRAs to be charged a fee based on assets.
Sending this in early. Want to encourage folks that you can buy a nice car for cash and not have car payments. My former van was 16 years old. We started saving for a newer one in earnest 3 years ago. Bought a 3 year old van to replace it week before last. We were patient until we saw what we wanted. I can't tell you how excited I was to write that check at the dealership. Longtime reader of yours, and knew you would be happy for us.
What’s a more creative, uncommon suggestion on how to save for retirement?
One of the new programs rolled out by President Obama was the MyRA, which is a great way to get new savers thinking about retirement. We would love to see this program really take-off.
I love your question. But really the most effective way to save is to just SAVE. All caps for emphasis not yelling.
Look, people will argue that you have to save in an ROTH (after tax money so that withdrawals aren't take). Experts urge that you participate in your 401 (k) or similar workplace plan. There is the traditional IRA.
But really any one of these vehicles will do the trick. The key isn't the tool but consistently and starting as early as you can.
Time my friend is your best investing friend.
Why wouldn't we want advice in our best interest?
We absolutely believe you should receive advice in your best interest. The industry has long called for a best interest standard. However, the rule the Department of Labor issued takes a overly broad approach, that will leave many retirement savers struggling without access to affordable advice.
If I want to make my own IRA decisions can't I still keep my IRA with my online broker?
As long as it is a purely online account, where you have no access to an individual to speak to, then there should be no change. If your provider does not offer that type of account, then you may need to change your provider.
Here's my frugal habit: I save the fat from cooking meat, strain it, and store it to use instead of oil or butter in later cooking.
We paid off our mortgage! I bought the house 20 years ago (8%, 30-year term). Got married 4 years later (both in our early '40s then). Refinanced twice (5.25%, 3.375%), kept lowering the term (30 to 15 to 7/1 ARM). Tripled the monthly payment to finish faster, even when my stepdaughter went to college. Last night, the balance fell below $10k. With 6 months in our emergency fund, and 23% of our salaries automated to retirement, we paid it off. I wept with relief and joy. It's possible, fellow Color of Money chatters. We're not super-rich (we make $100k combined), but we were consistent savers, which is the key. Now taking the monthly mortgage payment and automating it to savings so I'll never be tempted to spend it!! Thanks, Michelle, for all you do! It feels surreal, but freedom from our biggest monthly expense gives us so many more options than before.
I wish I could really hug you right now.
You are were I hope to be very soon.
Free of the biggest burden in my budget!!!!!!
Good for you.
Go celebrate for all of us! Or have a mortgage burning party. But don't burn the paperwork. Just have a "hot" party!
Your last paragraph is absolutely true. What duty does the financially responsible sibling have to her parents once her parents and sister have run through their funds?
Read Michelle's Sunday column here.
Also, here's Wednesday's column on the same topic: Family and money: A lesson in accepting what you cannot change
I hear you. But I also believe that we are called to help even when people don't do right. If an adult child is trifling financially, you may have to let the person fall. However, if parents run out of money enabling an adult child, I can't see them suffer completely. It's a balance and called compassion.
Am I supposed to be able to hear something? I have read a few questions and answers.
Hey there -- Chat producer here. The chat is text-based. No audio or video. If you're here, you're in the right place. That reminds me, and thanks for the question, I'll leave a note above so people know in the future.
Q for Lisa: Do you believe incentives matter -- that people do what they're paid to do and refrain from doing what they're penalized from doing? If you believe incentives drive behavior, do you have concerns about how an advisor might make a recommendation that allows him to collect tens of thousands of dollars more than a relatively similar recommendation that wouldn't pay the advisor that amount (for example, by recommending one product, the advisor would receive a $250 payout, but by recommending another product, he'd receive a $30,000 payout?) Do you think an advisor who needs to put food on the table for his family would easily turn this higher payment opportunity down?
Advisors do look out for client's best interests. It is only if the client does well that the advisor does well. Investors should always ask their advisor about how they are being compensated.
Many advisors give advice in the best interest of their clients -- but not all. In fact, only registered investment advisers are obligated to provide fiduciary advice. Brokers and insurance agents, who are not registered advisers, are not subject to a fiduciary standard. They may give you advice in your best interest, but the may not. The best way to protect your money is to ask your advisory if he or she is a fiduciary. And if the answer is no, or not clear, think long and hard about the next decision you make.
I'm old enough to remember when auto company executives blustered on TV that if Congress made shoulder seat belts mandatory, U.S. car companies would go out of business. Now, safety features are a huge selling point. I'm hoping now that the fiduciary rule is out there and more people know to be suspicious of financial promises, the same sort of thing will happen--honesty, transparency, and accountability will become selling points.
That is exactly right! And the market is moving in that direction already. In the last fifteen years products like target date funds and index funds have revolutionized the market, and they succeed in part because of the features you mention.
The market will continue to move toward a fiduciary standard because individuals like you are demanding it more everyday. Whatever happens with this rule, advisors who are unwilling to put their clients first will be at a disadvantage.
I agree with you Cristina. Advisors should put their clients first, and investors should expect that. We just believe that the Department of Labor took an overly broad approach for which we are very concerned about the consequences for retirement savers.
Hi Michelle. I received a very nice bonus for my 2016 performance. Considerably more than I anticipated. Pretty sure I know how you'll answer this ... I have a small balance of about $9200 on a home equity loan that I'm on track to pay off by the end of the year - doubling up payments actually. I could use the bonus money to pay it off and get the monkey off my back, as you like to say. But the extremely conservative part of me likes how the balance in my savings looks with that money safely tucked away. I guess I need you to give me that extra nudge today.
I'm going to give you a KICK.
Get that monkey off your back!
Also, not sure what your rate is on that home equity loan but if the money is parked in a bank account you are actually losing money but not paying it off. As long as you have some savings, do it. Do it today.
And come back next week and tell us all how wonderful you feel to now spend the rest of the year debt-free. And you can take those payments and still build back up your savings.
Do it. Do it. Do it. Do it. Do it!!!!!!!!
I want to hear what everyone has to say on this topic, but I have a mandatory meeting at 12:00pm. Will you post the full transcript, I hope? (I only recall seeing highlights previously, but that could just be my lack of paying attention.) Question: It seems like the financial services biggest issue with the DOL rule is the cost and compliance changes that it requires and I keep hearing about this Best Interest Contract and when its needed and how to get out of it. Couldn't there be some less costly way to require paid advisors be working only in best interest of the investor? And I'm still curious as to why this only applies to retirement accounts?
Great question about why does it only apply to retirement accounts! AARP thinks a fiduciary standard for investment advice should apply no matter what kind of account you have. The Department of Labor, however, only has authority over retirement accounts. The SEC could develop a similar standard for other investments, but has not done so for decades.
And yes, there is another way to comply, without entering into the Best Interest Contract. An advisor can simply serve as a fiduciary, which many of them already do. Giving advice in your best interest does not have to be complicated or costly.
We agree that a best interest standard should apply to all types of accounts, which is why we have supported a best interest standard created by the SEC. We have been supporting this since before the DOL issued its proposal. We do not think it is in the best interest of customers to have multiple standards and multiple regulators. It is in the best interest of savers to have one standard of care for all their accounts.
I side on the best interest for every SINGLE investment account. My question has always been why wouldn't your planner want to act in your best interest?
Hi Michelle - As a millennial who is fast approaching 30, I'm struggling to figure out my best path forward financially. I'm 27 years old, earn $60,000 a year, have $20,000 in my 401k (I contribute 10% each month with a 5% employer match), and have $20,000 in my savings account. I have no debt except for a $250 monthly car payment, which will be paid off by November, and $4,000 in student loans, which will be paid off by August. In the next 5 years, I'd like to buy a home, get married, and start to think about having kids. My biggest concern right now is how to set myself up to achieve those milestones. Should I take some of my savings and open a Roth IRA, which can be used for a down payment on a home, or should I continue to save it in my savings account? I'm hoping to make a decision soon, so that if I do contribute, I can contribute for both the 2016 tax year and this year. I think that I'm hitting my retirement goals, but I'm not certain and the information that I've found online is not clear. Financial advisers seem to have a different set of clients than 20-somethings without significant investments who are just looking for occasional advice. Do you have any suggestions for millennials on how to make the right financial decisions?
First of all, you are sooooooooo ahead of a lot of people not just young adults.
So stop a minute and pat yourself on the back. Right now.
I love the path you are on. This what I would do:
-- Keep your retirement savings right where it is.
-- Pay off the car.
-- Pay off the student loans.
-- Take the money from paying off the car and the students loans and use that to being a house fund. Since it appears you will want to use that money in five years or less just put it in the highest yielding deposit account you can find. It won't be much but you don't want to invest the money since you'll need it soon.
As for wondering if you are on track with retirement, go to choosetosave.org and use the ballpark retirement calculator to see if you're on track.
Michelle, I hope you’ll allow me to respond to a poster from last week, who write in about how he’s investing in a mutual fund called Kaufmann B. Your answer to the poster was spot-on and focused on fees, so I suspect you were already onto this…. but I also wanted to write separately to emphasize that Kaufmann B (KAUBX) has a really high expense ratio. The reported expense ratio is 2.55%, and if you look this fund up on personalfund.com (a useful tool for studying the impact of fees on fund returns) it reflects an actual expense ratio of 3.43% for 2016. THIS IS EXTREMELY HIGH! Paying fees this high as opposed to a low-fee index fund makes a difference of around $100k over a 20 year period assuming typical stock market returns. Does the poster want $100k in 20 years, or $200k from this $30k investment? Simple as that. That’s how big of a difference fees can make! If the poster doesn’t want a planner, at the very least get out of the high-fee funds, and into a low-fee index fund with a reputable company. Michelle is 100% correct on this. Do it now!
I didn't know the fees for this particular fund but I very much appreciate that you looked into to and came back.
Thank you!!!
Folks fees matter.
I am intrigued by the questions and answer about IRA fees. I assume the law change is meant to ensure that IRA providers can receive a return for their work since they can no longer act in their own best interests. Does this mean that IRA providers currently do not act in the best interest of their clients?
IRA providers are currently overseen by securities and banking regulators and want to see their clients succeed, because if they succeed, the provider succeeds. The law change means that many providers will have to make changes to their business to fit within the structure of the DOL rule. It is not a structure that works with current practices, so firms are trying to figure out what changes need to be made, which may involve moving clients from one type of account to another - whether from brokerage to advisory or from brokerage to on-line do it yourself types of accounts. This is the practical effect of the rule.
Do IRA providers work in the best interest of their clients currently? It depends. Only registered investment advisers are required to serve as fiduciaries. Brokers and agents are not required to serve as fiduciaries. And to make everything even more complicated, your advisor's title may not tell you the whole story. Unless you ask, you will not know whether or not your advisor or provider has agreed to act in your best interest.
Maxed out 401(k). Funded Roth for 2017. Have an emergency and life happens fund. Now, should I save in a low fees taxable account (which I'd also use for retirement), or pay the house off? If I pay the house off, I lose the mortgage interest deduction and pay more taxes. FWIW, I hope to retire in 11 years at 62. Thank you very much for the chats, and your sensible advice!
Good for you for being such a great saver.
I've done plenty columns on this whole concept of keeping a home for the tax benefit. It does not make sense to keep paying mortgage you can pay off and thereby saving A LOT of interest just for the tax benefit.
First of all many people take the standard deduction and therefore don't get the mortgage interest deduction. And it is a deduction not a dollar-for-dollar credit. Meaning if you pay say $10,000 in mortgage interest in one year you don't get to take off from your taxes $10,000. You only get to deduct a part of it. And that part does not make up for all the interest you'll pay hanging on to the mortgage. Additionally, the closer you get to paying off the mortgage the less deduction you have. Yes, you may pay more in taxes if you pay off your mortgage but it's still a LOT less than the interest you'll be paying.
Pay off your home early if you can.
Why does the industry oppose a rule that is supposed to protect investors?
We believe it will do more harm than good. It will limit choice, limit access to advice, and raise costs on retirement savers. We fully support a best interest standard, but believe the DOL's approach is flawed, and the SEC should take the lead.
First, for decades, many advisors have provided advice in the best interest of their clients, while offering a wide variety of products and investment strategies. That proves that this standard has worked and will continue to do so.
Many good things are already happening in the marketplace. More and more firms are saying they will comply with the rule, and there are more low-cost, diversified investment products than ever before.
Considering that conflicted advice costs individuals an estimated $17 billion in lost savings each year, people saving for retirement cannot wait another day for all advisors to comply with a fiduciary standard.
I was recently reading that Roth IRAs don't have an age minimum. I have 2 kids, ages 11 & 9. I have 529 plans set up for both, no tax deduction in my state. My question is should I open a Roth IRA for them use that money to increase the 529 contribution?
To contribute to a Roth IRA your kids have to have earned income. If your kids are babysitting or child stars that's probably not the case.
Just make sure you are saving enough in the 529 that neither you or your kids have to borrow any money for college. And I'll say this. My kid is about to graduate from UM College Park. We have significant funds leftover because she got a really good scholarship. But we are using those funds to pay for her graduate studies. So she will have a BA and Masters with NO DEBT!
I think that government entry to help the average investor with the fiduciary rule is good but there are even more basic problems with the a highly educated folks in the DC Metropolitan area. Most are financially a illiterate since they never learned money management in high school, college or graduate school. Nor did they learn it from their parents who equally uninformed. That they don't learn from knowledgeable people like Michelle Singletary either. Do you agree that basic financial education should be in high school curriculum as mandatory course? Thanks for all you do even for folks who know a little about boring subjects such as budget, stocks, bonds and other mundane things. Steve from Potomac
We support financial literacy education for everyone at every age. But, financial literacy education is no substitute for fiduciary advice. Today, everyone is responsible for difficult and complex financial decisions that will directly impact their financial security and need professional advice, free of conflicts, to make the decisions that are best for them and their families.
I agree with Lisa. And really being money wise isn't just about being intelligent or ignorant. Cristina is right. The money issues we have to deal with now are very complicated. This stuff is like rocket science. I read about financial stuff ALL the time and there are still issues I haven't mastered.
The key is to try and be informed such as participating in chats like this. Or reading my column or any column about money. Get a subscription to Consumer Reports. Go on the website for AARP. It's not just for senior young folks. There is a lot of informant that can help you as you age.
This is TMI but Consumer Reports stays in my bathroom for those long breaks!
what practical affect will this rule have on my IRA in my brokerage account?
We are very concerned that investors will not be able to work with the advisor that they have worked with for years, and may face increased costs, or lose access to advice and conversation with their advisor.
Conflicted advice is not free. We all pay for conflicted advice. It costs $17 billion annually in lost savings. Because retirement accounts are tax-subsidized, all tax-payers are losing out, even those who are not saving for retirement.
The rule that is now in effect gives firms and advisors many ways to make sure advice you receive is in your best interest, not the best interest of your advisor. The rule allows for many models -- brokerage accounts, commissions, percentage fees, etc.
Going forward, you will have access to your advisor and you will know that any advice he or she gives you is in your best interest.
And a big thank you to the poster who brought this info to the chat today. I love how we all learn from each other. This is one of my most favorite hours of the week. :-)
Ditto. This is one of my favorite times of the week too.
First I have the BEST producer. You all say hey to Teddy!
Most importantly I've tried to create a safe place to ask your money questions. Can I get hard on you? Sure I can. But it's always in love. I want you to be financially free. I want to bring you an unbiased look at financial issues.
I have some strong opinions and I know everyone doesn't agree and I welcome your comments. Keep it civil and respectful and this is the place to be.
So I too, love that someone came back with some great information. I love that one reader started the Thursday Penny Pinching tips (keep those coming). I love that it was a reader who suggested "Testimony Thursday."
This money stuff is tough and hard and going to get tougher with the new administration because there will be new rules or rules delayed, etc.
Guess I'm just saying, love this forum and appreciate your coming here -- new and returnees.
Isn't the easiest way to be sure that your advisor is acting in your best interest, and not just theirs, is to check if they are a CFP? That would cut out all of the commission based salesmen who are only interested in maxing out their commissions.
This would be dependent on whether one has the money to pay for these individual services from an advisor. This has been an option for investors for years; however, 98% of IRA investors with less than $25,000 choose to enter into brokerage relationships.
You can have a CFP that isn't fee-only. Certified financial planners can earn income all kinds of ways. But having that designation does ensure a certain level of study and accountability.
One argument against the rule is that consumers understand that advisors who are not subject to the rule may recommend investments that are suitable but not optimal, and that they are willing to forgo some potential investment returns in return for the advice. But an Obama administration report supporting the rule said that "households are mostly unaware of their advisers’ conflicts and compensation arrangements." Ms. Bleier: What evidence is there that consumers do understand these issues?
Investors should ask their advisors how they are compensated. We believe individuals have the ability to take responsibility for understanding how they pay their advisor and any other financial arrangements. We do appreciate that this entire debate about this rule has raised the profile of the issue which has more investors talking about their finances and retirement security. We just believe this particular rule by the DOL will do more harm than good.
Can you give a broad explanation of what a fiduciary planner is supposed to actually do not just the statement put the client first. How can you tell if that is being done? What about the companies he/she uses to manage your stock are they under the same rules?
Here is an example. If a someone can sell you a high-commission, high-fee product that meets your long-term retirement goals, or a low-commission, low-fee product that also meets your retirement goals, which one would you rather have your advisor tell you about? A fiduciary acting in your best interest must advise you to invest in the second one. Advisors who are not can recommend either one.
Once again, today the only way to know if your advisor is giving you advice in your best interest is to ask.
Long-time benefits manager here, at an employer with a 403(b) plan with low fees, an excellent lineup of funds including a full suite of index funds, and over a billion dollars in plan assets that we leverage to get those low fees. I've lost count of the number of retiring employees who come to us right after terminating their employment to withdraw their whole account balance and roll it over to an IRA. Why? "Because my advisor told me it's what I should do". In my view the fiduciary rule is overdue.
I commend you for having a plan with low fees and an excellent line-up of funds. However, there are many reasons that one would be interested in rolling out of a plan, including wanting to consolidate assets after multiple job changes, or wanting different distribution options, including a defined payout arrangement. Further, there are many 403(b) plans and 401(k) plans that have high fees and limited options. There is a lot of flexibility and choice that can be found by rolling out of a plan. This is an important conversation for an individual to have with their advisor who can review the individual's full portfolio.
We could not agree more! People saving for their retirement cannot wait any longer for this rule. It would be even better if all financial advisors were required to give advice in the best interest of their clients.
This issue has become very personal for me. My husband and I have been doing some pre-retirement planning. We are about 8 to 10 years out so we've been getting pitches for our workplace plans. I'm telling you some of what we are getting is VERY concerning to me. For example, my husband is in the TSP, which has super low fees but planners want us to roll that money out to very expensive options just so we can have so-called "control."
If you have a plan that has great investment options, low-cost options and you have been happy with your returns I see no need to roll into a more expensive option -- even if you have multiple plans. Heck it's not that hard to keep track of your various retirement plans. Online accounts make that so very easy. We dump information all our various investment pots - and we have several -- into Quicken and we can see instantly where everything is and how it is doing.
Do not be scared into rolling over for silly and expensive reasons.
Now if you have a crappy plan and the fees aren't great, sure roll over. Just be careful again about fees.
Fees matter!
Once we paid off the mortgage, I didn't feel a thing because the money was re-directed to max our Roths. I suspect many frugal-ites will have a similar experience. It's certainly nice to KNOW (emphasis, not yelling) that the mortgage is gone, but as far as lifestyle is concerned, we're not driving a new Lexus or ordering pheasant under glass. Just pokin' along as usual. Taking the bus; eating out of the lunchbox. ...
I cannot understand this comment: "It will limit choice, limit access to advice, and raise costs on retirement savers." It seems to me that you're saying Americans can only afford conflicted advice. Doesn't the loss of $17 billion indicate we can no longer afford conflicted advice? How would this rule limit access to advice?
It would limit access to advice because advisors would be penalized for having a conversation with a potential client unless they agree to be a fiduciary, which includes the signing of a contract under the DOL's rule. That contract includes agreeing to a variety of things, including opening the advisor up to potential class action litigation. The high cost of litigation stops many people in many industries from offering services.
Under the proposed DOL rule, how much is a person going to be charged on his retirement account? Would it be more cost effective to grandfather my account and stay under my current fee structure if the average annual fees are less than the DOL rule mandates? If I have a million dollar account, the new DOL fee might be a lot more expensive than just paying for transactions as I make them.
You are asking the right questions here. It would be important to ask these questions of your financial advisor. For certain accounts, you are right that the new DOL rule will lead to higher costs as opposed to your just paying for transactions as you make them.
To be very clear, the DOL rule does not mandate any fee structure or business compensation model. It is up to your firm or advisor to determine how they want to comply with the best interest standard. If they are charging you more, you should ask them why.
Yes, please understand the rule does not tell your financial planner what to charge. Where the increase might come is that some advisers won't be able to get backdoor compensation (bonuses to sell you one fund over another) without being crystal clear about how they are earning their money. That would in turn mean that they will be sure to sell you a product in your best interest, which may be a lower-cost product that may not earn he or she as much money.
Really this is about transparency.
Now, having said that, I have no problem in advisers getting paid for what they do. They do help a lot of people. We just need to make sure fees are clear to all.
How would you respond to the claim that the Fiduciary Rule will prevent lower income people from being able to afford financial advice?
We think that someone who is struggling to save for retirement is exactly the person least able to afford conflicted advice, which can result in high fees, hidden commissions, and sometimes low returns, all of which will have a huge impact on their retirement income.
Is the site not working today? Unable to see the chat. Been on since 11:55 am. Thank you.
Chat producer here: email me at teddy.amenabar@washpost.com and I can help troubleshoot.
Seems mundane but my first recommendation would be refreshing the page.
Hasn't the SEC had years to act on creating a uniform fiduciary standard? I'm glad the DOL stepped up to help real people. And court after court has upheld the rule. Good news for retirement savers!
That's right -- we have been asking the SEC to act for years.
We are also glad that at least retirement savings will be protected by this rule.
We have been trying to move the SEC forward on a best interest standard for years because we do believe it would be better for investors if one standard was used across the board. Otherwise, we run the risk of bifurcation, redundancy, investor confusion and market disruption. Despite its intentions, we believe this rule will make saving for retirement harder for investors at the end of the day.
When we first met our broker/financial adviser many, many years ago, he told us he operated on the above rule (I don't know if it was because he belonged to an association or if it was because his firm required it). So I'm confused about the rule.
It's great that your broker/financial adviser has always acted as a fiduciary! Many advisors do, which shows that it is reasonable and workable to expect advice in your best interest.
The rule will require everyone giving retirement investment advice the type of advice you already are getting--advice in your best interest.
Michelle, Just wanted to let you know- I've been reading your columns for several years now, and just made my last student loan payment this today (4 months ahead of the 10 year anniversary of my graduation). It's been a long, long road, and I still have some debt on an interest free credit card, which will be paid off in full before the interest comes back. I wanted to thank you for your columns and chats! They're great motivators.
