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New Guidelines, More Protection from Wall Street Antics?

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Most people think that the Securities and Exchange Commission (SEC) regulates the investment markets and providers of investment advice, and that the Financial Industry Regulatory Authority (FINRA) regulates the Wall Street sales agents.

But in fact, when it comes to your retirement plan, like a 401(k) account, the chief regulator is actually the United States Department of Labor. Anybody who provides advice to these plans has to meet standards generally defined in the 1975 law known as ERISA (Employee Retirement Income Security Act), which is administered by the Department of Labor.

The list of retirement plan advisors is a long one. There are independent financial advisors who receive fees directly for their work, and act in the best interests of the plan participants. But many plans have been sold by insurance agents and brokers, who creatively introduce a growing array of hidden charges and fees and high-cost investments which, according to analysis by the White House Council of Economic Advisors, together have been quietly shifting roughly $17 billion a year out of the pockets of American workers into Wall Street bonus pools and insurance company coffers.

This month, the Department of Labor issued rules designed to stop these brokers and agents from working in their own interests rather than the interests of American workers. The rule imposes iron-clad fiduciary requirements on anyone who provides investment advice to these plans or plan participants. "Fiduciary" is a legal term that is grounded in case law, but essentially it means that the customer’s interests must be the priority when any investment recommendation is made.

In addition, the Department of Labor extended these new, stronger protective rules to anyone who recommends that consumers roll their money out of a retirement plan into an IRA. Those investment recommendations, too, must also be made in the best interests of the customer. This was intended to prevent insurance agents and brokers from recommending that their customers move money out of the newly-cleaned-up plan into the same high-commission products (like some variable annuities and non-­ traded real estate investment trusts) that they had been recommending in the plan.

How well will this new set of rules protect consumers? At this point, there is reason to be optimistic. The larger sales organizations on Wall Street and in the insurance industry could be sued under this strict fiduciary standard if their brokers and agents continue their current practices, and they would be unlikely to prevail in court. The safest course would be for these organizations to set up divisions made up of people who would be trained to recommend only lower-cost or high-performing investment options, meanwhile giving up the sly hidden fees that they have been collecting for decades.

Alas, the rule specifically states that existing arrangements will be grandfathered, which means that if you're a participant in a plan at your workplace, you may not immediately feel the impact of new fiduciary obligations. But over time, most companies are expected to take a closer look at their fee structure, and as they amend their plans, the money leaks will gradually be repaired.

Eventually, if the analysis is right and workers suddenly find themselves with, collectively, $17 billion a year more in their retirement accounts than they were getting before, we could see a difference in the number of people who can afford retirement. The only losers would be Wall Street bonus pools and insurance agent commissions, which, for most observers, actually make this a win-win.

Furthermore, this ruling dispenses with the traditional "suitability rule" where a broker, agent, advisor did not have to do what is best for a client. The "suitability" standard is still used by brokers, etc. when not dealing with retirement plans.

As CFPs and Investment Advisor Representatives we function as fiduciaries in our relationship with clients.

Vern Hayden has been a CFP (Certified Financial Planner) since 1978, and is considered a financial planning pioneer. He is the Founder and President of Hayden Wealth Management Group, a fee-based financial planning firm that offers a comprehensive range of services.


Vern is a regular commentator on several leading national news and financial television programs that appear on CNBC, NBC, Fox News, Bloomberg and PBS, including WealthTrack with Consuelo Mack. CNBC branded Vern, “Mr. Mutual Fund”, and has praised him as “one of the leading Financial Planners in this country” (Brenda Buttner, former Host of The Money Club). He is also a regular contributor to the financial press, including CNBC.com, TheStreet.com, the Journal of Financial Planning, and the American Association of Individual Investors Journal. His latest book, Getting An Investing Game Plan…Creating It…Working It…Winning It, was published in 2007 by John Wiley and Sons. Vern also conducts financial education programs on behalf of many companies and charities, and is a sought-after speaker at financial and industry conventions.


Active in financial planning circles for more than 40 years, Vern has been a board member of the CFP Board of Standards and has chaired the National Endowment for Financial Education, the former parent organization of the College for Financial Planning, which created the CFP™ (Certified Financial Planner) designation. He was President of the North Bay California Chapter of the International Association of Financial Planners (IAFP) in 1975 and Founding President of the Westchester/Rockland Chapter IAFP in 1987.


Vern has a Bachelor of Arts in Philosophy from Wheaton College with extensive graduate work from University of Southern California, American University, University of Oregon and New York University. He was also a Major in the U.S. Air Force. Vern hails from South Salem, NY, and is an avid handball player.


Vern Hayden can be reached at (203) 454-3377 or vhayden@haydenwealth.com.

Regulatory Disclosure: The information on this website has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. This website is neither an offer to sell nor a solicitation to buy any securities. Vern Hayden and Gerard Gruber offering Securities and Investment Advisory and Financial Planning service through Geneos Wealth Management, Inc, Member FINRA/SIPC.  Investments are not FDIC insured. Investments are not deposits of the financial institution and are not guaranteed by a financial institution. Investments are subject to investment risks including loss of principal amount invested.