Does “in my best interest” always mean the least expensive option, or is there some other criteria that an adviser uses?
While minimizing costs is important, the lowest-cost option is not always the best option, and the (Labor Department) rule does not require advisers to recommend the least expensive investment. Instead, they are required to consider a wide range of factors — things like the investment’s risk profile, liquidity, performance history, compatibility with the investor’s risk tolerance and investment goals.
In light of the new rule, should I be keeping all my previous commissioned-based products? Is it OK to ask my adviser to prove that these products are in my family’s best financial interest? If so, what do I ask?
The rule offers an excellent reason to initiate a conversation with your adviser about the advice you have received in the past, and will continue to receive in non-retirement accounts, that has not been governed by the fiduciary standard. That doesn’t mean you should run out and dump your commission products.
Some may, in fact, meet the best-interest standard. In other cases, costs associated with selling and replacing the investment wouldn’t be worth it. It is absolutely appropriate for you to ask your adviser to describe whether and how your current holdings meet a best-interest standard. Follow up by asking more specifically whether there are other options available that would be better for you — with lower costs, a better performance record, greater liquidity or other more investor-friendly features — and why they didn’t recommend those.
I was given information in preparation for the fiduciary rule for my retirement account. It would make the account I have at an investment company a “self-directed account” or I could receive “personalized investment guidance” if I switched to a portfolio with a much larger number of investments. Is this because of the new regulations?
It sounds as though you are being offered a choice between a plain vanilla self-directed account, with no advice and limited investment options, and a fee account, with advice and a broader array of investment options. What you haven’t mentioned, however, is how much each account would cost, how much you trade, how confident you are making your own investment decisions, or how much you rely on an adviser for recommendations. Those are all factors you would have to consider in making this choice. But it may be that you don’t find either option particularly attractive.