What the new U.S. fiduciary rule means for you

NEW YORK (Reuters) - After years of debate, the U.S. Department of Labor issued a new rule on Wednesday that requires financial advisers who handle retirement accounts to act as “fiduciaries,” which means putting the best interests of their clients first.

A pair of elderly couples view the ocean and waves along the beach in La Jolla, California in this file photo dated March 8, 2012. REUTERS/Mike Blake

The ruling is complex, but the following are some answers to some of the most basic questions on retirement savings, fees and the kind of advice you should expect in the future.

1. If I do not have a financial adviser, am I affected at all?

The new rule focuses on retirement savings. As a result, it will impact your point of contact with any Individual Retirement Account (IRA) you have, as well as your workplace 401(k), if you ever need to roll it over after changing jobs or upon retirement, says Karen Nystrom, the director of advocacy for the Financial Planning Association.

Your taxable investment accounts are not affected by the new rule.

2. How do I know if the financial adviser I have is a fiduciary?

Financial advisers with designation like Certified Financial Planner (CFP) or Registered Investment Adviser (RIA) are fiduciaries from the start. They typically charge either per hour or yearly based on a percentage of your assets.

If you have an IRA at a large financial institution and mostly interact with a person assigned to your account, the fiduciary answer could be more complicated. That person may earn commissions for placing your investments in certain mutual funds and for products like annuities.

The best thing to do is to just ask. Nystrom says this is an easy yes if the person is fiduciary. If you get a waffling answer, keep pressing.

3. What will change right away?

The rule has some components that go into effect within a year and another set that will take two years.

Eventually, your financial adviser will ask you to sign a document called a “best interest contract,” which will establish a fiduciary relationship between the two of you. Once that is in place, any advice you get on retirement savings will have to meet a standard that is about your needs, and not what makes the adviser the most money.

“You’re not going to get a sales pitch that’s disguised as advice,” says Micah Hauptman, financial services counsel for the Consumer Federation of America.

Until then, however, it is business as usual. To make sure that the investment guidance you get meets the new standard, ask your adviser these questions as provided by the FPA (

4. Will I save money?

If you were previously dealing with an adviser who was steering you toward high-priced investments, you may end up saving a bundle.

Your fees may fall if you go for low-cost index funds instead of higher-priced mutual funds, particularly when you are rolling over a large amount from a 401(k) into an IRA.

“It’s going to take a lot of egregious transactions off the table,” says Stewart Massey, chief investment strategist for Massey Quick, an investment firm of RIAs based in Morristown, New Jersey.

You will still pay fees for an adviser to manage your account and fees for the investments in the accounts and trades. The typical investor pays 1 percent of assets under management for investment advice.

5. Will my adviser dump me?

If they do not want you, it is likely that you do not want them.

"You should not take it as an insult, you should take it as a wonderful event in your life," says Mitch Tuchman, managing director of the investing service Rebalance IRA (, which is already covered by the RIA fiduciary standard.

“There are a lot of new options out there that are one-third the price you are paying now,” Tuchman adds. For example, so-called robo-brokers use automated index fund selection and do not require high balances to get started.

Editing by Lauren Young, G Crosse