“There are a lot of very fine financial advisors out there, but there are also financial advisors who receive backdoor payments or hidden fees for steering people into bad retirement investments that have high fees and low returns. So what happens is these payments, these inducements incentivize the broker to make recommendations that generate the best returns for them, but not necessarily the best returns for you. . . the truth is most people don’t even realize that’s happening.” President Obama, AARP, Feb 2015 (1)

What is the President’s speech all about?

The President’s recent address to the Save Our Retirement Coalition at the AARP headquarters in Washington, D.C., underscored points I have shared with clients and prospects for years.

1. Every employer and employee should know the annual costs of their personal or company retirement plan
2. Every employee should be aware of fees when moving or “rolling over” a retirement plan from one place to another
3. Use caution when buying annuities, because there are generally high commissions, and you may have to wait 5 to 10 years before you can access your money without incurring a penalty (2)

The President mentions “…there is no uniform set of guidelines to financial professionals are held to”. That’s primarily true, because the industry allows its members to define its roles. We’re brokers, wealth advisors, wealth managers, financial planners, financial advisors, investment advisors, etc. We understand, but the public in general does not.

Those inside the industry understand that brokers and commission-based agents are held to a lesser suitability standard, rather than highest legal standard which is a fiduciary.

A fiduciary must act solely in another party’s interests. … A fiduciary has a duty to avoid any conflicts of interest between themselves and their clients. (3) The main issue is; can a client’s interest be ahead of your own when you stand to score a big commission by selling or recommending an investment product?

Fiduciaries want greater clarification because it allows them to stand out among the competition; while the commission side wants it to go away.

Once companies and employees understand just how much they are really paying in annual expenses, compensation on all levels especially the commission side will begin to decline.

Employers who “buy” a 401(k) or 403(b) plan from an insurance company, bank or big Wall Street brokerage firm may not act be acting in their employees best interest. For years, brokers have been held to a lower suitability standard rather than the highest fiduciary standard; yet ERISA laws are quite clear that a fiduciary standard is the rule used for guiding decisions effecting plan participants and their beneficiaries. (4)

Many employers are taking notice of recent court cases where company plan participants are suing employers for excessive plan fees, conflicts of interest and breach of fiduciary duty… and winning.

Recent news feeds show that plan sponsors and company plan participants are becoming increasingly aware of excessive plan expenses, revenue sharing agreements, mutual fund fees, Target Date Funds (TDFs) and conflicted investment advice where a broker is incentivized to sell an investment product based on its commission schedule.

Further fee compression and disruption in the financial services industry is starting to happen, and more is on the horizon. The financial services industry is embarking on a huge disruption in services just as medical and health care professions have been going through since the passing of the Affordable Care Act.

Employers who sponsor 401(k) plans for their employees want to seek the advice of investment fiduciary to better  understanding the annual costs associated with their plan, and to potentially uncover hidden fees and expenses.



About the Author

Bill Ulivieri has been in the financial services industry since 1981. In 2004, he co-founded a registered investment advisory firm that specializes in providing portfolio management to individual investors using Exchange Traded Funds.  Bill also provides independent investment advice and “benchmarking” to individual company 410(k) and 403(b) retirement plans. Visit www.cenaclecapital.com for more information



(1) Forbes Magazine: http://www.forbes.com/sites/brianluster/2015/03/10/does-obamas-endorsement-of-a-fiduciary-standard-change-the-wall-st-status-quo-2/

(1) https://www.whitehouse.gov/photos-and-video/video/2015/02/23/president-obama-speaks-aarp

(2) http://m.investor.gov/investing-basics/investment-products/annuities

(3) https://www.law.cornell.edu/wex/fiduciary_duty

(4) http://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html