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2010 The Year of the Fiduciary?


In the wake of the carnage caused by the recent stock market downturn, much has been written and proposed surrounding the idea of fiduciary standards and responsibilities. This is by and large a good thing.

Congress, the SEC, and the DOL are looking at rules changes designed to protect the investing public. This is positive, providing that they enact changes that make sense, provide clarity, and that are tough for financial services firms and brokers to circumvent.

Chris Carosa recently posted an excellent article on the Top Fiduciary Stories of 2009.

Looking ahead, here is my Fiduciary “wish list” for 2010:

Adoption of a clear Fiduciary Standard. The public has a right to know what they can expect in the way of a Financial Advisor’s obligations to act in the best interests of their clients. Suitability does not cut it. Proposed rules allowing advisors to “change fiduciary hats” when working with clients on different aspects of their relationship seem absurd. The public, in my opinion, has a right to expect that financial advisors will act in their client’s best interest period. Anything else falls short.

Transparency and full, uniform disclosure of 401(k) fees and expenses. Much has been written about the drop in the value of investor’s 401(k) accounts. A Time Magazine article went as far as advocating that 401(k) plans go by the wayside. I think this is overreacting. A major problem with many 401(k) plans is the lack of transparency regarding the underlying fees and expenses of the plan. Excessive plan expenses serve to reduce participant returns as they are often paid out of plan assets in full or part. Rules requiring plan providers such as insurance companies, mutual fund companies, etc. to fully disclose all plan costs and revenue received under revenue sharing arrangements in a uniform, fully disclosed fashion would be a major step forward. This would allow sponsors, participants, and consultants to evaluate and compare a plan provider’s costs and fees in a uniform manner. I am convinced this would help reign in plan expenses and be a major victory for plan participants in their quest to save for retirement.

Adoption of rules defining acceptable advice arrangements for 401(k) plan participants. The Pension Protection Act (PPA) has provisions defining acceptable advice arrangements for Fiduciary Advisors providing direct advice to plan participants. These provisions allow for “conflicted” advisors to qualify if certain conditions are met. The Obama Administration recently delayed finalizing these provisions allowing conflicted advisors to participate. My hope is that the DOL will approve final advice provisions so that plan sponsors and advisors know how to move forward with advice for plan participants. In my opinion education just does not work, participants need and want direct investment advice. I also hope that the final advice provisions prohibit conflicted advisors from participating. The last thing participants need is advice from advisors who may have motives other than acting in the best interests of plan participants.

The year almost ended has been a year where fiduciary issues made news. My hope is that 2010 is the year where real, concrete progress is made on the fiduciary front.

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  1. I agree, Roger, that those giving 401K advice should be free of conflicts of interest. People want and need objective advice-especially today. I have written about the basics at http://www.401kmaximum.org
    Fern Alix LaRocca CFP® EA

  2. Thanks for your comment Fern. I hope the PPA rules for advice are finalized sooner than later.

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