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It's June 9, and that means the Department of Labor's new fiduciary rule is now in effect.
The goal of the legislation is to improve the quality of advice you receive as an investor when it comes to your retirement, but I believe the opposite will happen.
The fiduciary rule is, in fact, a huge risk to your retirement.
Here's why, and more importantly, how you can protect your money (and profit) despite the government's ham-fisted approach.
A Wolf in Sheep's Clothing
The new rule is supposed to improve the quality of information you receive from anyone providing advice on a retirement by forcing them to put your interests ahead of theirs.
Sounds good in theory, right?
Sadly, I've never seen a government regulation that didn't have unexpected consequences.
Especially when it comes to your money.
The thinking is that the new rule will force advisors to take proactive steps that reduce the conflicts of interest inherent in every recommendation they make – not the least of which is receiving a commission for selling you something. Prior to this rule, all they had to do was disclose.
Wall Street would have you believe this is a very sophisticated process, but in reality they may as well be selling used cars. To their way of thinking, you're the one at risk if the "transmission" fails or an investment blows up. After all, they "told" you about the risks.
Here's Where It Gets Ugly
The new rule will…
- Lead firms to charge higher fees as a means of making up for the reduced commissions associated with each recommendation. So you'll pay more for less, which is a lot like the insurance racket in this country with each new enrollment period, or those "temporary" airline fees that now top $41 billion a year (and which are permanent).
- Force less affluent retirees out of the system because they cannot afford desperately needed advice that will become fee-based as opposed to commission-based. I'm already hearing plenty of back-channel reports involving brokerage firms "firing" smaller accounts because they just don't want the hassle (or the liability).
- Make investors less profitable by permanently altering the diversification process. It's great that the new rule makes it easier for investors to sue based on bad advice. The downside is that advisors realize this and will adjust their recommendations based on reducing the probability of being sued rather than achieving the highest returns for you. That means more bonds recommended and fewer stocks in the mix. Never mind the irony that bond markets are the riskiest they've been in a generation!
- Limit the number of investments available to you. Regulators have rightly focused their ire on high-fee, poor return variable annuities and non-traded trusts that have been the bane of investors and unscrupulous advisors for years, but I think this is going to spread rapidly to include anything related to pre-IPO allocations, certain kinds of master limited partnerships, perfectly legal tax shelters, certain high-growth small-c…
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean, and he's also the founding editor of Straight Line Profits, a service devoted to revealing the "dark side" of Wall Street... In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.