Insights & Advice


When your broker doesn’t want you anymore

Across the nation, various financial institutions, affected by the new “fiduciary” rules issued by the Department of Labor, are making some tough decisions. Don’t be surprised if your broker informs you they can no longer manage your company’s 401 (K) or other defined contribution plan.

This happened to one of our clients just this week. The couples, both self-employed, had used one of the nation’s largest brokers to house and manage their money purchase plans at their companies. A money purchase plan, for those who don’t know, is like a pension plan where employees make contributions based on a percentage of annual earnings. This is standard stuff along with profit-sharing plans, 401(k) s and the like. Corporations use these plans as fringe benefits to reward and encourage retirement savings for owners, managers and employees.

All of the above are tax-deferred savings plans and as such fall under the Department of Labor’s new rule (starting in April of this year). The rule requires financial professionals who give advice on retirement accounts to act as fiduciaries for their clients. This means they must act in their client’s best interests ahead of their own financial gain and that of their company’s. They will be required to disclose their compensation and any conflicts of interests as well.

In our case, since we are already fiduciaries, we were able to swiftly transfer both the husband and wife’s accounts (worth over $1 million each) to our care and expertise without skipping a beat. We expect that as more brokers and insurance companies come to grips with these new responsibilities toward their client base, we will receive more calls like this.

As you might imagine, most financial services firms are not going to be advertising their decisions to dump you and your corporate accounts. Some, however, are upfront about these changes. For example, State Farm Insurance, which has sold investment products through their 12,000 agents since the early 2,000s, will no longer use that model. Instead, they will have a self-directed call center that will make information and other resources available to customers, but they will have to make their own decisions regarding investments.

Mega-broker Edward Jones announced that they will limit access to mutual funds for retirement savers in commission accounts as well as reduce investment minimums to comply with the new rules. I have the feeling that more of these kinds of announcements, as well as letters and phone calls to clients, will happen with increasing frequency as the deadline approaches.

For corporate accounts, this couldn’t happen at a better time. More and more disgruntled employees, unhappy with the performance and fees of their company’s retirement plan, have pursued litigation to recover what they claim are exorbitant fees and poor performing investments. The DOL fiduciary rule gives the corporate manager or owner the opportunity to transfer their tax-deferred retirement accounts to companies that are already fiduciaries and have thrived under the responsibility of putting their client’s interests first. That way, they and their employees can be sure that the investments and fees that are charged are always in their best interests.

Posted in A Few Dollars More, Financial Planning