Make It Last – Ep 10 – DOL Fiduciary Rule…Does It Protect You?

On June 9th, the new Department of Labor “fiduciary rule” went into effect. Who does it cover? Can you be comfortable that you’re getting the best advice now? What are the warning signs you should look for?

Listen in this week for a full show on what the new DOL fiduciary rule means for your and your retirement assets.

Make It Last with Victor Medina is hosted by Victor J. Medina, an estate planning and elder law attorney and Certified Financial Planner™. Victor provides 360º Wealth Protection Strategies for individuals in or nearing retirement.

For more information, visit Medina Law Group or Private Client Capital Group.

Click the link below to watch the show:

Click below to read the full transcript…

Announcer:  Welcome to “Make It Last” helping you keep your legal ducks in a row and your nest egg secure. With your host, Victor Medina, an estate planning and elder law attorney and certified financial planner.

Victor J. Medina:  Everybody, welcome back to Make It Last. It is Saturday morning. If you are listening live, I’ve got my cup of coffee and I hope you have your coffee. I don’t know what to tell you. I am excited for this show. Lots of great stuff going on.

Now, if you’re just tuning into us, it is Make It Last. We help keep your legal ducks in a row and your financial nest egg secure.

I want to take some time this morning to acknowledge some great stuff that’s happening in my personal life. I had my oldest son graduate from seventh grade, did really well.

I had my middle son make his premier soccer team and he’s moving on in that. He’s doing well, also doing well in fourth grade in the STEM program. My four year old seems to like try to take over the world because he’s 14 and he’s the last kid, so he’s got to make his voice be heard.

Anyway, lots of great stuff. Lots of great stuff, including I celebrated a birthday. I had the most unexpected happy birthday present that I could ever wish for. My mom who happens to live in New York City, and when she’s there at that home, she enters the lotto where they give away tickets to see the show “Hamilton.”

They do that. The first two rows, they give them away for 10 bucks. It’s incredible. She wins the lotto. She calls me and she says, “I know that Lucas, your middle son, he’s…” She doesn’t say your middle son. She said Lucas, but you don’t know who Lucas is, so I’m telling you, my middle son, Lucas.

Anyway, [laughs] she calls and says, “I know Lucas loves Hamilton. He’s the biggest fan. I won these lotto tickets. Do you think he wants to go see the show?” I said, “Of course, he wants to go see the show. [laughs] I’ll pick him up from school, I’ll drive up, you can take him to the show, I’ll have a drink, I’ll read my iPad, and I’ll take him home when it’s done.”

As we’re driving up, my mom calls us and says, “Are you on your way?” I said, “Yeah, I’m on my way.” She said, “I want Lucas to see the show. I would actually really prefer if he sees the show with you, because I know that you are the number two Hamilton fan in our family.”

I got a chance to go see that show with my son. We got to enjoy it. Let me tell you, it is a fantastic show. It is everything that people tell you that it is. You have got to watch the PBS documentary, see more about it, or clips online. It was fantastic, a once‑in‑a‑lifetime opportunity.

I’m so grateful to have that, so a big public thanks to my mom, who’s probably listening to this show, for being so generous. My mom and dad were giving up their chance to see the show so that we could see it. It was great. That was the best birthday present.

Anyway, let’s get back to stuff that you want to listen to [laughs] which is about retirement planning and getting your legal ducks in a row and protecting your financial nest egg. Guess what? We ended up getting a new law passed. It went into effect on June 9th.

It is the Department of Labor for Fiduciary Rule. We’ve been talking about this for a while. In fact, I think one of the first or second shows that we’ve done for Make It Last, we talked about DOL for Fiduciary Rule, we talked a little bit about why.

It was important for investors and what it really meant. Now, here we are in June 9th and notwithstanding all of the discussion that was going on since change over in the administration. In fact, here we go, we’ve got the DOL Fiduciary Rule. I want to do, first, a review of what it is, and then in the next segment, I want to tell you whether or not it helps you and what you can do with it.

The DOL Fiduciary Rule came into effect in large part because the Obama administration wanted a way to help protect investors, and he was looking a way of curbing the amount of bad things that happen with investment advice, specifically when people try to line their own pockets when investment advisors line their own pocket instead of helping their clients.

It’s truly difficult to pass new laws. You need the support of congress which Obama didn’t have. You need to be able to walk the tightrope of banking and SEC regulations. The best way for them to make this change happen was to set a new group of rules, what they call promulgating regulations.

They do that in the Department of Labor area because they could propose the regulations and they would be adopted. They didn’t need some kind of congressional approval that would be there if you try to pass a new law.

What they did is they set a new retirement accounts. That’s where we have the most amount of our wealth, the common investor. If we can control what happens in retirement accounts under the Department of Labor, then maybe we can help control what kind of abuse has happened.

What they did is they took their opportunity to be able to change these regulations and they put these rules in place that say that if somebody’s going to help you with your retirement account, then they have to look out for your best interests.

In the next segment, I want to talk to you about what they actually have to do. As we start to wrap up this segment, I want to let you know that these rules are just for your retirement accounts.

If you have saved money in an after‑tax account, you got paid and then you didn’t spend all the money, and you had some savings, and then you say, “OK, I’m going to walk over to Vanguard, or I’m going to go to Merrill Lynch, or I’m going to go to one of these big players, and I’m going to give them the money to invest.” You walk in and work with an advisor.

If you’re talking about an after‑tax account, that is not controlled by the new fiduciary rule. Anyone that’s giving you advice in that area, they don’t have to look out for your best interest.

I know that this is eye‑opening. Most people believe that if someone is giving them advice, and if it’s their business, and they take them on as a client, they take them out to dinner, and they’re super nice to them, and they sound like they know what they’re talking about, of course, they need to be looking out for their best interest.

It’s eye opening when you discover that. In fact, they don’t have to do that. They can give you advice for something that is suitable, good enough, but isn’t in your best interest, especially if that advice of what you buy, and what you purchase, and which you invest in.

If that works out to their interest a little bit more than something that would be in your best interest, it’s OK to do. It has been for a while. This new rule is not going to be something that allows you to stop minding the shop.

You should absolutely be looking out for what you need to be doing, and whether or not the advice is in your best interest. You need to be vigilant about that, but it will help you deal with your retirement account.

We’re going to cover in the next segment, when we come back, how it actually is going to handle that. I’m going to spend a lot of time on this show. It is a super important topic. For me, it is a topic that I’m passionate about.

As you all know, I wear two hats in my professional life. When I’m not on the radio here with you, I deal with people as a lawyer, and then I deal with them as an investment advisor. Often, the clients are clients of both of those companies.

As a lawyer for 15 years, all I’ve ever done is put my clients’ best interests at the forefront of every decision that I’m making, every decision. When you spend your career doing that, you can’t imagine that anybody would do anything different.

When I take on a relationship with a client, it is a sacred relationship where I have to put their best interest, not only at the forefront of every piece of advice but even above my own interest. That’s what it is to be committed.

That’s what people expect when they work with their lawyer. They want their lawyer to be in their corner, helping them, looking out for their stuff.

Victor:  They want that also to be the case on the investment side. Until recently, there hasn’t been any rule that requires that at all, especially with the most well‑known, home‑town names when it comes to that stuff.

Anyway, we’re going to take a quick break. When we get back, I’m going to talk in more detail about the DOL Fiduciary Rules. Stay tuned, and you’ll be able to learn what you need to know to help you protect your retirement assets when we come back.



Victor:  Everybody, welcome back to Make It Last. Listen, I just left the last segment talking to you about the new fiduciary rule. I didn’t tell you what it covered and what the obligations were, how it’s supposed to work. I’m going to do that in this next segment.

We were talking about that the new law has to cover your retirement account, because that’s the way they were able to pass that law to make it effective. In this case, it is going to govern a few things that are related specifically to your 401(k)s and your IRAs.

Now, if you have a company‑sponsored 401(k), that’s something that your company’s put together, that you contribute to, and maybe that they contribute some money to do some matching, that account is well‑protected.

Usually has all creditor protection around that. Usually those assets are completely immune from creditors. If somebody that you’re going to meet with is going to give you advice to move that account, to roll it over to an IRA, they have to be doing that in your best interest. What does that mean?

They’re going to have to demonstrate a few things that are better for you by moving that money than by keeping it. For instance, they’re going to have to talk a little bit about the fees that are involved. Are you going to be paying higher fees with the investments that they’re recommending or are you going to pay lower fees?

They’re going to talk a little bit about your protections. Is it OK for you to give up unlimited creditor protection, and instead, just get protection around bankruptcies or should you stay in the 401(k) and keep that protection? What would be in your best interest given your particular circumstances?

They’re going to talk to you about investment options. Are your investment options in the IRA that they’re going to put you in better, broader, or are they’re more narrow?

A lot of it has to do with the kind of investment advisor that they are. For instance, the way that we do our work, we are independent, which means that we don’t sell any proprietary products, we don’t recommend something that pays us a higher commission.

In fact, when we recommend investments, they are non‑commissionable securities, so the people that we say, “OK, go invest in this mutual funds,” they don’t pay us anything. They don’t give us any trips. That’s the right way to do business, but that’s not the way that everybody does business.

When you look at the investment options that are available, many times the people that are working for those household names, they have a limited number of investments that they can offer, that there is a portfolio, a plate of investments that are part of their recommended stuff, and they can’t go outside of that.

Why, because they’re employees of these household names. For them to keep their job, they have to recommend what the boss says that they have to recommend, and maybe not what’s in your best interest.

For us, it’s a pretty easy barrier to overcome. When we talk to people that are rolling over 401(k)s and most every circumstance, we’re looking at lower fees, because their investment portfolios are amongst the least expensive that are available out there.

If you look at the investment options, they’re the broadest available, but I don’t have any limitations at all.

I can invest in whatever my client wants to invest in, and I can recommend anything, and everything that’s in their best interest. These 401(k) rollovers, they need to pass this higher test of making sure that moving that money out is the best thing for you to do.

That’s particular the case if the person who’s going to be investing this money gets paid more or something different than a level amount. What does that mean? When you work with an IRA like we’re set up to do, you pay a fee that is a percentage of the assets under management. That is what we call a level fee.

Whatever that percentage is, we apply that towards your account, that’s what you pay us, and that works out pretty well, because it keeps us independent. Nobody else pays us, you pay us. When you’re doing that, you know that you’re getting the advice that’s in your best interest, because no else is paying us but you.

The only person that we need to be loyal to is you. We don’t have to answer to anybody else that isn’t you. That makes sense.

If someone pays something that is in the form of a commission, like on an insurance product specifically on an annuity, or if they’re selling you a fund and they’re getting a commission for doing that, that’s not a level fee arrangement.

When it’s not a level fee arrangement, it means that the investments that you’re in, the compensation has to be reasonable. The recommendations has to be prudent. They can’t sell you something that pays on 11 percent commission, which by the way, some of these products do. I know it’s shocking, so imagine that.

What do you think is tied up in that money that you’ve invested in order for them to pay the investment advisor, the insurance agent, 11 percent of commission? It’s crappy product. You have to make sure that the compensation that someone’s being paid if they’re not level, they’re making a commission, has to be reasonable, and the investment advice has to be prudent.

It falls out of the main part of the rule. It has to go under an exemption. These exemptions are carefully carved‑out so that what you’re being recommended still is somewhat protected.

Folks, let me tell you. At the end of the day, for the advisor to overcome that, it’s paperwork. They have you sign all of these disclosures.

The questions that I would put in front of you is, you’re in the midst of opening these new accounts, this person has told you that you’re going to have the world and unicorns too, and you’re signing all the paperwork, are you going to know the difference between paperwork that includes these exemption, allows them to get paid more than a level fee or not?

It’s going to be very difficult to be able to figure out if that’s the case.

The problem that I have with this fiduciary standard, as the first thing, is that the Department of Labor has carved‑out exceptions that will allow it…not necessarily be business as usual, it’s going to be a little bit better, but we’re not confident that we’re going to get the absolute best interest of the client when we have these exceptions in place, in these exemptions.

I find it difficult to remain confident that people are going to be in a better situation. If anything, part of what’s going to happen is that, we’re getting at this little world of investments that the lawyer say, “OK, that’s going to pass muster.”

If somebody challenges that, that’s going to be OK, but they’re not what’s in the client’s best interest. When you’re giving that advice, there’s usually only one answer. What’s in your best interest? This one thing.

To have a world of different options that you can pick from and to have people be able to get paid differently for that, investment advisors either have to have that as their backbone of what they’re doing or not. They’re either going to act in your best interest or they’re not.

I tell you, one of the best things that you can do is ask the financial advisor, the insurance agent, whoever you’re meeting with. If they’re trying to give you advice on finances, ask them to sign a fiduciary pledge. You can go online and you can google this stuff. If you do, you’re going to find fiduciary’s oath. There’s one out there for financial advisors.

What you essentially would be asking to sign is, “I promise that everything that I do is in your best interest.” If you get them to sign that in every circumstance, for every account they’re handling, for every investment that they’re making, now you can start to feel a little bit more comfortable, that in fact they’re going to be looking out for your best interest.

Victor:  When we come back, I’m going to be talking about different investment options along the way, and where this DOL rule is going to come into play with your retirement accounts, where you’re going to see it just nestle itself in.

Stay tuned. When we come back from this break, we’re going to talk a little bit more about the DOL Fiduciary Rule. It’s a big change out in the investment world and you need to know how to protect yourself. We’ll come back from this quick break and we’ll keep talking.

This is Make it Last, helping you keep your legal ducks in a row and your financial nest egg secure.



Victor:  Everybody, welcome back to Make It Last. We have been talking all day about the DOL Fiduciary Rule. I haven’t said that once correctly. I feel like I’ve got marbles in my mouth. It’s a mouthful to talk about the new Department of Labor, so called Fiduciary Rule.

It’s important for people because as of June 9th, anybody who handles retirement money and gives advice including financial professionals of all types, whether they call themselves brokers, advisors, planners, wealth mangers, or whatever else, they got to adhere to these things called impartial conduct standards which we’re calling some reasonable rates.

If you thought that your financial advisor was already required to do this, you’re not alone. About 46 percent of all Americans believe that financial advisors are required by law to act in their interest and it’s true for people who charge fees rather than commissions, but it hasn’t been true for anyone else.

There are lots of people that believe that because someone is looking out, handling their finances and things like that, the fact that they don’t charge for their advice is somehow a benefit. That couldn’t be further from the truth, couldn’t be further from the truth.

Worst thing that I hear is somebody saying that they’ve got free financial advice. Free advice of any kind is hard to stomach because if the other person is not getting paid by you, they’re getting paid by somebody. We all got to handle the same obligations ‑‑ we got car payments, we got kids, we got mortgage payment, we got to pay the bills.

How we get paid for our day‑to‑day work is very, very important. It’s in the financial world harder than ever to figure that out. We’re going to see some changes. The first thing that we’re going to see is a lot of new advertisements coming out.

You’re going to see a lot of people talking about this because this new rule that came into effect on June 9th is actually only the first phase. This is the ramp up phase.

The real rule, the rule in its final form, including the rule that allow people to bring class actions in lawsuits actually is not going to be in effect until January 1st of 2018.

In the meantime, the Department of Labor is reviewing whether or not this shock end part of the rule is necessary. It could mean that this is as far as we get, that this minimal rule with all of these exceptions as far as we go, or could it be that we go all the way.

What can I tell you? Stay tuned to this show because we’re going to let you know the way that it comes down.

You can pay [inaudible 22:21] in to these changes and don’t let your guard down, especially if you start to see all of these new marketing stuff for true fiduciaries. We’ll see what’s going to happen on there.

Now, if that happens and you’re working with advisor, you may get request to restructure your account. The reason for that is there’s going to be strong incentives for these larger firms to move investors into fee accounts because it’s much easier to supervise that. You may get a lot of inquiries from people.

By the way, if you’re looking for its signal, [laughs] if you’re looking for evidence that your financial advisor has not been looking out for your best interest, watch this phone call, because if they’re telling you got to move and restructure your entire account, it means that they’re getting paid through the backdoor with the other stuff that they were advising for you.

They’re going to end up needing to make a change in order to stay compliant. Boy, is that a big red flag, or big tip that they weren’t treating you right from the beginning.

Next thing that you’re going to see is that as we move to fee accounts, you’re going to start to see what you’re paying for. We’ll see more higher fund fees being disclosed. That would be on the statements. There will be a clearer breakdown of fees that you’re paying both for funds and advice.

First, I guess, is don’t panic if you see these new fees because they were always there. It’s going to be more transparent for you to be able to see that. You’re going to be able to see something that’s probably should be clearer than your cellphone bill.

Don’t panic. Stuff is there. You’re probably needn’t say anything new in terms of fees. You’re not paying more but you may want to examine those because you could be paying a lot more than is necessary. One of the things that we do in our office is we start to talk to people about their retirement planning.

We examined the cost of their investments as one of the first steps because that’s like leaving the leaky faucet on. We want to tighten that up. We do talk to people about the cost of their investments. Often, when we do that, they see how much they’ve been paying for their advice and what’s been embedded. Sometimes on top of that, you’ll see your fees for advice.

Be vigilant, look at this, but don’t be surprised if you see fees being disclosed. If you think that they’re high, there were always there, you’re just getting to see them now.

Next thing is that your advisor might recommend new funds or new products, in addition to restructuring your accounts, requiring new paperwork to be a fee‑based account set of commissions, you may see new financial products, including specifically new annuities and fund classes as a result of this.

In fund classes, this is going way beyond time that I have for in the show but you can buy different kinds of shares of the same fund and they charge differently. They pay their advisor differently.

Class A, Class B, Class C, Class I funds, we may see there’s Class R for retirement that those were disaster. We may see a new set of funds that are out there ‑‑ fund share classes that were more about level fees.

I’m expecting to see new annuities that are going to have shorter surrender periods as we do in these, especially if they’re going to start to reduce the amount of commissions that they’re paying out. My advice to you is, don’t be too quick to sign anything.

At the end of the day, the new rule does not prohibit those commission based products. I talked to you before about how we can have those exemptions in there, including two different ways of getting around the requirement that you charge a level fee, especially if you want to make a commission.

If you don’t know quite yet what’s going on, don’t be too quick to sign anything because unscrupulous financial advisors are going to look at to this opportunity to talk to clients about something new without the full requirements of the law being passed as the chance to start to bill people.

They’re getting in front of the folks. They will say, “This is something you got to do because of the new rule,” and sign everything and it’s just paying them as much as they would be paid before and stealing money. I’m going to call it what it is ‑‑ stealing money from investors, so don’t be too quick.

You’re going to still need to ask some hard questions. Even though this new rule’s in place, it only applies to retirement accounts. As I mentioned before, it’s going to be crucial for clients to ask their advisors, “Does your advisor agreement require you to be a fiduciary for all investments, not just the money in my 401(k) or IRA?”

They should be comfortable asking hard questions like, “Are you a fiduciary? Will you sign a pledge to that? Do you have my best interests in mind?” In addition to that, look at the bill in his statement, say, “I want to know what I’m paying for. I want to know who I’m paying to and why I’m paying it.” You should be comfortable asking those hard questions to your advisors.

By the way, this is the opportunity that if you don’t like the answers that you’re getting, well, it’s time to think about making a change. You’re going to be looking at somebody that is going to sign a fiduciary pledge. It’s going to look out for your best interest.

That’s the way that we’ve been doing work from the moment that we set out, because as lawyers, that’s the only thing that we can do ‑‑ it’s work for our clients’ best interests. Of course, we’re going to do it that way, but as financial advisors, it’s the right way to treat them too.

To wrap up for today, this new DOL Rule…See? I can’t even say it then. This new DOL rule, it’s important. It is going to help, but I don’t want anybody to be falsely confident and put too much faith that you’re still going to look out for this stuff.

You are going to sharply consider whether or not you want to work with somebody that’s a fiduciary in your world, or if you want to continue with the status quo. This is your opportunity to examine that and see if there’s a change that you want to make.

That’s it for today’s show. I want to thank you for joining us. I want to thank everybody on the production team for putting together such a great show. We sound great because they’re great at their job.

If you like the show, please do us a favor. Go on to iTunes and leave us a positive review.

Victor:  It’s one of the ways that Apple figures out which podcasts to promote to other people. We would appreciate it if you could share the good feelings that you have about the show on the Apple website, on the iTunes but also, share it with your friends.

Go to and forward that web address to people that you know could benefit from listening to shows like this one. We’re letting people know about how to make sure they’re protecting themselves and their retirement money.

Thanks so much for joining us. This has been Make It Last with Victor Medina where we help you keep your legal ducks in a row and your financial nest egg secure. We’ll catch you next week, next Saturday.

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