Registered investment advisers can be held liable if they don't act in clients' 'sole interest' when it comes to retirement advice.
Registered investment advisers shrugging off the Labor Department's fiduciary rule are making a mistake.
That's the message that Skip Schweiss, a managing director of adviser advocacy at TD Ameritrade Institutional, is trying to get across to the thousands of RIAs across the U.S.
Many RIAs consider themselves immune from the new regulation because they're already legally bound to act in their clients' best interests as fiduciaries under the Securities and Exchange Commission's 1940 Act. But the DOL's new rule goes a step further: they must act in the “sole interest” of clients when helping them with individual retirement accounts, according to Mr. Schweiss.
“As I've traveled around the country, I've seen a lot of raised eyebrows,” he said during an interview Wednesday at TD Ameritrade's elite adviser summit in Dana Point, Calif. “I'm surprising a lot of investment advisers by telling them, 'it applies to you.'”
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It's not widely known that the DOL's fiduciary rule requires advisers to adhere to the Employee Retirement Income Security Act when advising clients on individual retirement accounts, or IRAs, according to Mr. Schweiss.
Recommending that an investor roll over assets from a 401(k) plan into IRA could be problematic because the adviser will charge a fee for that new service, adding a new layer of cost that may not be in the client's interest, he said.
Conflicts of interest can also arise when an adviser recommends that a client move out of cash to invest in bonds, for example, in order to pick up some yield.
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In this low-interest rate environment, advisers typically don't charge people for money parked in cash, according to Mr. Schweiss, who said that they do collect fees for other types of investments.
The DOL's fiduciary rule, issued in April, provides investors with the opportunity to sue advisers who aren't acting in their interests when dispensing advice for 401(k) plans or IRAs, so it's important for them to prepare all the necessary documentation to show they're in compliance, he said.
