New Fiduciary Rule seems to be a big disappointment

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pkcrafter
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New Fiduciary Rule seems to be a big disappointment

Post by pkcrafter » Sun Oct 08, 2017 5:10 pm

Money Magazine


The DOL rule requires advisers and firms to act as fiduciaries, or in other words, to put investors' needs above their own. The new rule allows the sale of commission-based products as long as firms follow several steps, including acknowledging their fiduciary responsibility, providing prudent and impartial advice, disclosing any conflicts of interest, and receiving no more than reasonable payment for their services.
http://time.com/money/4459130/edward-jo ... s-in-iras/

In practice, excerpt from M* board,
I recently learned from my current brokerage house (Raymond James) that I can no longer buy no-load mutual funds in my IRA. If I were to transfer to a managed asset arrangement and pay a % of my portfolio value then it would be OK. Otherwise I am forced to buy a load fund. Apparently the brokerage house foresees less liability under managed assets than under my commissioned account under the new DOL Law. I called Merrill Edge just now and encountered same problem.
Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

dbr
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Re: New Fiduciary Rule seems to be a big disappointment

Post by dbr » Sun Oct 08, 2017 5:12 pm

Is anyone surprised?

retiredjg
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Re: New Fiduciary Rule seems to be a big disappointment

Post by retiredjg » Sun Oct 08, 2017 5:39 pm

dbr wrote:
Sun Oct 08, 2017 5:12 pm
Is anyone surprised?
Well, I am. I guess I was naive enough to think that rules put forth to protect consumers might actually work, but I too see little good that has come from the new rules. It is not surprising that the financial advice companies would try any end run possible to keep making the same amount of money. From their point of view, it's just good business.

I am disappointed in what the "new rules" have been able to accomplish in terms of lowering fees for customers. However, I do believe that more consumers are "getting it". Interesting that such a large percentage of them are from Edward Jones. I would have expected a similar number from all the big names but that is not what we've heard from here.

McGilicutty
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Re: New Fiduciary Rule seems to be a big disappointment

Post by McGilicutty » Sun Oct 08, 2017 5:47 pm

So the Fiduciary Rule is just a way for Wall Street to justify their high fees (i.e., higher fees means they are looking out for investors)? Figures. Methinks that this is just the start of an assault on low-fee index funds.

motorcyclesarecool
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Re: New Fiduciary Rule seems to be a big disappointment

Post by motorcyclesarecool » Sun Oct 08, 2017 5:58 pm

I've always thought that meaningful disclosure would be more realistic than trying to get the fox to convert to veganism. After all, we can't legislate morality. :wink:
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

investorpeter
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Re: New Fiduciary Rule seems to be a big disappointment

Post by investorpeter » Sun Oct 08, 2017 6:12 pm

I'm not sure whether it is the new rule, or the passive-aggressive way some brokerages are apparently responding to it by refusing to offer any mutual funds or ETFs to people who manage their own IRA accounts, because obviously we are so clueless that we cannot distinguish between low and high fees, so will need to pay them a management fee to figure it out for us. This is a direct affront to Boglehead philosophy.

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Re: New Fiduciary Rule seems to be a big disappointment

Post by beehappy » Sun Oct 08, 2017 7:01 pm

pkcrafter wrote:
Sun Oct 08, 2017 5:10 pm
Money Magazine


The DOL rule requires advisers and firms to act as fiduciaries, or in other words, to put investors' needs above their own. The new rule allows the sale of commission-based products as long as firms follow several steps, including acknowledging their fiduciary responsibility, providing prudent and impartial advice, disclosing any conflicts of interest, and receiving no more than reasonable payment for their services.
http://time.com/money/4459130/edward-jo ... s-in-iras/

In practice, excerpt from M* board,
I recently learned from my current brokerage house (Raymond James) that I can no longer buy no-load mutual funds in my IRA. If I were to transfer to a managed asset arrangement and pay a % of my portfolio value then it would be OK. Otherwise I am forced to buy a load fund. Apparently the brokerage house foresees less liability under managed assets than under my commissioned account under the new DOL Law. I called Merrill Edge just now and encountered same problem.
Paul
I have a Merrill Edge account and I'm able to invest in no load funds. They even give me so many free trades that I don't pay any commission on any of my ETF trades. Is the M* issue about some type of employer-sponsored account? I can't imagine that Merrill Edge would get away with preventing people from buying no-load in self-directed IRAs.

Big Dog
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Re: New Fiduciary Rule seems to be a big disappointment

Post by Big Dog » Sun Oct 08, 2017 7:13 pm

I recently learned from my current brokerage house (Raymond James) that I can no longer buy no-load mutual funds in my IRA.
Sounds like the rules are working. (dump high cost RJ) :mrgreen:

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David Jay
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Re: New Fiduciary Rule seems to be a big disappointment

Post by David Jay » Sun Oct 08, 2017 7:19 pm

beehappy wrote:
Sun Oct 08, 2017 7:01 pm
I have a Merrill Edge account and I'm able to invest in no load funds.
Is that a taxable account or a retirement account (401/403/457/IRA)? Strictly speaking, the fiduciary rule has been propagated by the DOL for retirement accounts.

[edit] (yes, I know that the DOL is trying to extend it further...)
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

avalpert
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Re: New Fiduciary Rule seems to be a big disappointment

Post by avalpert » Sun Oct 08, 2017 7:39 pm

David Jay wrote:
Sun Oct 08, 2017 7:19 pm
beehappy wrote:
Sun Oct 08, 2017 7:01 pm
I have a Merrill Edge account and I'm able to invest in no load funds.
Is that a taxable account or a retirement account (401/403/457/IRA)? Strictly speaking, the fiduciary rule has been propagated by the DOL for retirement accounts.

[edit] (yes, I know that the DOL is trying to extend it further...)
I just tried and am able to get through to the confirmation screen at Merrill Edge to buy a no load fund in an IRA.

retiredjg
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Re: New Fiduciary Rule seems to be a big disappointment

Post by retiredjg » Sun Oct 08, 2017 7:50 pm

beehappy wrote:
Sun Oct 08, 2017 7:01 pm
I can't imagine that Merrill Edge would get away with preventing people from buying no-load in self-directed IRAs.
The fiduciary rules apply to how advisors advise and manage money in retirement accounts. They do not apply to what you do on your own.

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Taylor Larimore
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Jack Bogle: "Putting Clients Second"

Post by Taylor Larimore » Sun Oct 08, 2017 8:26 pm

Bogleheads:

The new Fiduciary Rule requires stockbrokers, registered investment advisers and insurance agents to act in the best interests of their clients. Nevertheless, the investment industry is fighting the Fiduciary rule tooth and nail. Never has it been so clear that most in the industry put their own interest ahead of their clients.

Last February, our mentor, Jack Bogle, wrote an article for the New York Times about the Fiduciary Rule. This is the link:

Putting Clients Second

Thank you, Jack!

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Kenkat
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Re: New Fiduciary Rule seems to be a big disappointment

Post by Kenkat » Sun Oct 08, 2017 8:43 pm

The problem the DOL Fiduciary Rule was intended to solve was where brokers / investment advisors / etc. would place clients in load-based commission products primarily with the intent to generate commissions. The most unscrupulous advisors would switch clients in and out of different funds, sometimes with similar investment profiles, to generate extra commissions. There were also better investment advisors who would sell funds such as the American Funds that, while they did have a 5.5% front-end load, once that was paid and the investor stayed in those funds, they weren’t bad choices for those wishing advice from a paid advisor.

Unfortunately, the DOL solution was to greatly restrict or eliminate any situations where an advisor could be compensated via an upfront load. What most firms did was to switch to an assets under management (AUM) model where you pay a fixed percentage amount instead. No more incentive to generate commissions! Problem solved!

Except what is better - pay a one time 5.5% upfront commission or pay 1% a year for the rest of your life, with that 1% being applied to the full account value including growth? The advisors still get paid, maybe more than ever, while the clients often end up worse off.

Nature finds a way...

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Taylor Larimore
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Re: New Fiduciary Rule seems to be a big disappointment

Post by Taylor Larimore » Sun Oct 08, 2017 8:53 pm

Except what is better - pay a one time 5.5% upfront commission or pay 1% a year for the rest of your life.
Kenkat:

There is a third choice: Buy a no-load, low-cost, index fund charging less than 1/20th of 1% for the rest of your life.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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WoodSpinner
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Re: New Fiduciary Rule seems to be a big disappointment

Post by WoodSpinner » Sun Oct 08, 2017 10:24 pm

pkcrafter wrote:
Sun Oct 08, 2017 5:10 pm
Money Magazine


The DOL rule requires advisers and firms to act as fiduciaries, or in other words, to put investors' needs above their own. The new rule allows the sale of commission-based products as long as firms follow several steps, including acknowledging their fiduciary responsibility, providing prudent and impartial advice, disclosing any conflicts of interest, and receiving no more than reasonable payment for their services.
http://time.com/money/4459130/edward-jo ... s-in-iras/

In practice, excerpt from M* board,
I recently learned from my current brokerage house (Raymond James) that I can no longer buy no-load mutual funds in my IRA. If I were to transfer to a managed asset arrangement and pay a % of my portfolio value then it would be OK. Otherwise I am forced to buy a load fund. Apparently the brokerage house foresees less liability under managed assets than under my commissioned account under the new DOL Law. I called Merrill Edge just now and encountered same problem.
Paul
Something is off with this quote—especially around Merrill Edge!! I have significant IRA assets there, all in no-load Vanguard index funds.

:?:

pkcrafter
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Re: New Fiduciary Rule seems to be a big disappointment

Post by pkcrafter » Mon Oct 09, 2017 8:23 am

If things weren't confusing enough, we apparently now have BICE (Best Interest Contract Exemption) and BICE LIGHT!
The Best Interest Contract Exemption is one of the main pillars of the Labor Department's fiduciary rule.

Without it, many brokers and advisers wouldn't be able to continue doing business in retirement accounts under current business practices and compensation arrangements. But with it, there is a way forward (albeit with more compliance requirements and litigation risk).


http://www.investmentnews.com/article/2 ... t-contract

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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jhfenton
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Re: New Fiduciary Rule seems to be a big disappointment

Post by jhfenton » Mon Oct 09, 2017 8:50 am

The Fiduciary Rule, or being a fiduciary in general, doesn't automatically make anyone a low-cost provider. Fiduciary obligations don't prevent you from being a high-cost provider. It just means that within your overall cost framework, you make decisions in the best interests of your clients. (There are many incredibly expensive fiduciaries out there in other fiduciary professions.)

In the long-term, a fiduciary rule should lower overall investment costs by making the costs transparent to clients (and prohibiting obvious abuses like churning for commissions), allowing clients to make informed decisions. But that is not a quick fix, and it doesn't mean that cost-sensitive Bogleheads are going to like all of the fee structures in the marketplace.

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Kenkat
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Re: New Fiduciary Rule seems to be a big disappointment

Post by Kenkat » Mon Oct 09, 2017 9:13 am

Taylor Larimore wrote:
Sun Oct 08, 2017 8:53 pm
Except what is better - pay a one time 5.5% upfront commission or pay 1% a year for the rest of your life.
Kenkat:

There is a third choice: Buy a no-load, low-cost, index fund charging less than 1/20th of 1% for the rest of your life.

Best wishes.
Taylor
Yes! Totally agree! That is why we are all here, compliments of “Bogle’s Folly”... :wink:

PaulR888
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Re: New Fiduciary Rule seems to be a big disappointment

Post by PaulR888 » Tue Oct 17, 2017 1:27 pm

Let me clarify as I am being quoted here from my Morningstar Forum post. I am the one who experienced a problem with my Raymond James brokerage. To my best understanding, starting in June, I can no longer buy NL mutual funds in my IRA. I was told I can either find a Load fund or give them my account to manage for a % AUM or buy directly from the mutual fund house. I opted for my conceived 4th option, I transferred all to Fidelity. Wrt Merrill Edge, after feedback from JR in New York in Morningstar Forum, I admitted to a mistake with my conclusion. When I was scrambling to identify replacement brokerages I called Merrill Edge and asked them only one question: Can I buy PONDX (a NL fund) in an IRA? Person I spoke to said No. I simply concluded reason was DOL FR. My conclusion appears wrong based on what JR later told me and other responses here. Sorry for the confusion on this.

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Re: New Fiduciary Rule seems to be a big disappointment

Post by PaulR888 » Wed Jun 20, 2018 5:49 pm

Just catching up with my June 2018 AARP Bulletin and am thrilled to read that the DoL Fiduciary Rule has been effectively terminated by the 5th U.S. Circuit Court of Appeals decision. I will always feel Raymond James did me wrong by totally changing my commission-based client relationship. For several years they allowed me to build my portfolio using a lot of no load mutual funds. And then in Sept 2017 both my advisor's office and I were surprised to learn that I can no longer add to my existing no load funds and can no longer invest in no load mutual funds. Pure nonsense IMHO.

retiredjg
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Re: New Fiduciary Rule seems to be a big disappointment

Post by retiredjg » Sat Jun 23, 2018 8:32 am

It will be interesting to see if they revert to their previous model. I suspect not because they figured out a way to make the rule benefit the company, not the client.

PaulR888
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Re: New Fiduciary Rule seems to be a big disappointment

Post by PaulR888 » Tue Jul 24, 2018 6:48 pm

You are right retiredjg and isn't it ironic that the DOL Fiduciary Rule was suppose to help the investor. I hope the SEC, which is in the process of working on their own rules on this matter, address this in a manner giving flexibility to the investor in its quest to protect the investor. I still believe commission based arrangements offered a cost-effective role for certain investors like me but it is no turning back for me at this point.

GoldenFinch
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Re: New Fiduciary Rule seems to be a big disappointment

Post by GoldenFinch » Tue Jul 24, 2018 6:57 pm

I’m really happy I’m a Boglehead and can get free advice on how to manage my money from smart people right here. Thank you!

retiredjg
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Re: New Fiduciary Rule seems to be a big disappointment

Post by retiredjg » Tue Jul 24, 2018 7:10 pm

PaulR888 wrote:
Tue Jul 24, 2018 6:48 pm
You are right retiredjg and isn't it ironic that the DOL Fiduciary Rule was suppose to help the investor.
It is ironic. The intent of the rule was clearly to protect investors. The ways we have seen the "wealth industry" capitalize on it in ways that are NOT helpful to investors makes me wonder if the regulation writers were asleep at the wheel or just underestimated the creativeness of people trying to make a profit.

Very disappointing indeed.

jalbert
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Re: New Fiduciary Rule seems to be a big disappointment

Post by jalbert » Tue Jul 24, 2018 7:41 pm

Many brokers/advisors moved exclusively to an AUM model to avoid being challenged on fiduciary grounds for excessive trading.
Risk is not a guarantor of return.

JW-Retired
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Re: New Fiduciary Rule seems to be a big disappointment

Post by JW-Retired » Tue Jul 24, 2018 8:12 pm

beehappy wrote:
Sun Oct 08, 2017 7:01 pm
I have a Merrill Edge account and I'm able to invest in no load funds. They even give me so many free trades that I don't pay any commission on any of my ETF trades. Is the M* issue about some type of employer-sponsored account? I can't imagine that Merrill Edge would get away with preventing people from buying no-load in self-directed IRAs.
Yes, but I don't think you can attribute that to the new Fiduciary Rule. You could always do it. I bought my first no load fund (Penn Square Mutual Fund) in 1975. Many more better ones since.
JW
Retired at Last

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