As company-sponsored pension plans are replaced with self-managed 401(k) plans and IRA accounts, American families are increasingly becoming more responsible for the management of their retirement funds. While this shift has allowed for greater freedom and choice, it has also exposed investors to product salesmen who may not have the client’s best interest at heart. The Department of Labor fiduciary rule, announced earlier this year, aims to end this abuse, which the White House Council of Economic Advisors estimates has cost American’s $17 billion a year in excessive fees.
Fortunately, even though the formal fiduciary rule won’t take effect until April 2017, the impact of the new laws are already having favorable effects on the investment industry. Sales are plummeting for some high commission products, such as non-traded REITs which generally take 10% of a client’s initial investments as a commission. Investment salesmen are having trouble pitching these products, now that transparency is heightened and investors will be able to see the impact of these high fees on day one. A recent article in InvestmentNews, “Nontraded REIT sales fall off a cliff as industry struggles to adapt,” does an excellent job highlighting the dramatic impact that the fiduciary rule is already having on the industry. The article also highlights some of the ways in which these companies are trying to hide fees so that upfront commissions now appear smaller.