How to Protect Yourself

Key Questions to Ask

As long as the Retirement Advice Loophole remains open, it’s very difficult for anyone to know whether the recommendations they receive from their financial “adviser” are really advice, designed to serve their best interest, or just a sales pitch dressed up as advice. If it’s bad advice from a sales person who’s putting their own financial interests ahead of yours, then there is a serious risk it will shrink, not grow, your retirement nest egg.

For example, when you tell your employer or your 401(k) plan administrator that you’re leaving the company, the administrator may refer you to a “call center.” And the call center employee may sound like a trusted adviser, but there’s a good chance they’re actually being paid hefty commissions to encourage you to roll your retirement money into an IRA and pick the administrator’s investment products.

Unless and until the U.S. Department of Labor (DOL) puts a new rule in place, anyone seeking (or being offered) retirement investment advice must take extra care. This website does not give retirement advice, but here are some questions to ask and some things to remember when anyone offers you financial advice:

1)Ask them if they are legally obligated to act as a “fiduciary,” and if they say no, ask if they’re willing to sign a contract stating that they will abide by the fiduciary duty. If your adviser is not legally a fiduciary, or is not willing to sign a contract to that effect, you should not expect them to act in your best interests when making investment recommendations. If the adviser avoids the question or simply does not know the answer, that’s a serious warning sign.

2)Ask how they are compensated. Is it through hourly or account-based fees, or, is it based on commissions for each product they sell you? If your adviser recommends mutual funds or other investments that charge a sales load or 12b-1 fees (often referred to as A, B or C shares), you are dealing with a salesperson even if they call themselves an adviser. Most salespeople are not legally required to act in your best interests. And, if your “adviser” is paid commissions to sell certain products, they may steer you into buying the products that make them the most money, even if those products aren’t the best choice for you.

3)If your financial adviser recommends a variable or equity-indexed annuity for your 401(k) account or IRA, be on your guard. Recommending variable or equity-indexed annuities in tax advantaged retirement accounts is one of the most common abuses engaged in by salespeople who don’t have to put your interests first. That’s because your 401(k) or IRA already offers the tax benefits that are the chief selling point for these annuities when they are sold outside tax-advantaged retirement accounts. What’s worse, variable and equity-indexed annuities typically carry high fees that will eat into your retirement savings over the long term.

4)Carefully read any account documents they want you to sign (including internet acceptances). Look for loopholes in the agreement, including technical language that reads something like this: “Client understands that any advice received will not be the primary basis for any investment decisions made.” That’s a clear giveaway that your adviser is trying to get around the fiduciary duty.

This website does not give investment advice, but we hope these questions will help anyone find a trustworthy adviser to guide them as they face the challenges of investing for retirement.

If you’re still confused or concerned, however, you’re not alone. That’s exactly why it is so important that the DOL be allowed to close the Retirement Advice Loophole for good. By far the best way to protect workers and retirees is to require anyone giving retirement investment advice to abide by the fiduciary duty: the obligation to always act in the client’s best interest.

If you agree that the Retirement Advice Loophole should be closed, take action today.