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NEW YORK (Reuters) - Leaving your job soon and rolling over a 401(k) into an IRA? Thinking about buying an annuity? About to call your money manager and allocate this year's Roth contribution?
All of these transactions and more may be different next week, after new guidance from the U.S. Department of Labor is implemented.
The so-called "fiduciary rule," which starts on June 9, was a political football during the Obama administration and seemed doomed after President Donald Trump took office. But once set in motion, the regulation was hard to unravel, says Jamie Hopkins, Retirement Income Program co-director at the American College of Financial Services.
Starting now and rolling out in a graduated process through Jan. 1, 2018, new rules will govern how investment professionals can dole out advice involving a slew of retirement funds, including IRAs, Roths, Health Savings Accounts and Coverdell Education Accounts.
So what is a fiduciary? Someone whose recommendations for buying or selling allocations are in the client's best interest. Plus, all compensation to the adviser has to be disclosed.
Some investors will see little change. The rules do not impact 401(k) accounts, for instance. Also unaffected are those who already have a fiduciary relationship with their financial advisers, such as those who are fee-only Certified Financial Planners.
Here are the top transactions that will be affected:
1. If your current adviser is not a fiduciary -
If you have your IRA or other retirement accounts at a major brokerage house, the person who handles your account might not be a fiduciary. This may also be true if you do not have a one-on-one relationship with an adviser, but instead use a call-in center to allocate your IRA contributions or make other changes to your investments.
Going forward, the people who answer the phone can still process the transaction, but they cannot help you decide what to do. That may also apply to your insurance agent or an accountant, if you have been using them for financial advice, says Hopkins.
2. If you are rolling over a 401(k) into an IRA -
While the new rule does not pertain to workplace retirement plans directly, if you change jobs and need a rollover, it comes into play. Anyone who is going to advise you about moving those funds into an IRA will have to be a fiduciary, says Hopkins.
3. If you are buying an annuity or life insurance -
For the most part, these transactions are not covered by the new rule, so the salesperson does not have to be a fiduciary.
"The lines are not crystal clear," says Hopkins. If you are using funds from a retirement plan covered by the rule, the person advising you about the transaction has to be a fiduciary. There are fee-only insurance advisers who are fiduciaries, if you want to make sure you are getting an independent take on such a major purchase.
4. If you have several types of accounts at several different institutions -
IRAs are getting the most attention, but there are other tax-advantaged retirement accounts that are covered by the new rule. The people who deal with them might have a varied approach to the new rule, and each may have a different type of paperwork for you.
If you are not sure which accounts are changing and which advisers are supposed to be fiduciaries, keep asking questions.
"Always be asking for information," says Peter Gulia, shareholder of Fiduciary Guidance Counsel, based in Philadelphia, which is an independent consulting company.
"There’s no police, no cop on the beat, no government agency. The DOL has no resources to enforce. The IRS has no resources to enforce. There is no agency looking out for consumer investor. It has to be do-it-yourself."
Editing by Lauren Young and Dan Grebler