Is the Investment Advice you Receive in your Best Interest?

The Department of Labor recently issued the final rules for standards that investment advisors need to abide by when providing advice to clients’ individual retirement accounts (IRA). It’s a significant step towards better transparency and clarity for investors – two areas that are core to our investment philosophy. As detailed in this article, what many investors likely assume, that their advisors are operating in their best interest, had not been required. That changes with the new regulations.

The new rule requires investment advisors to acknowledge their status as fiduciaries when managing an IRA. By being a fiduciary it means the investment advisor is acting in the client’s best interest. Before the standard had simply been to recommend investments that are “suitable” for the client. An investment with a significantly larger fee or a hidden commission could be suitable, but might not be in a client’s best interest. Investments in 401(k) plans were already governed by the fiduciary standard, but IRAs were not.

The new rule also requires that any conflicts of interest must be spelled out for a client. In order for advisors to receive commissions and other compensation for selling certain products to their clients, they along with their clients need to sign a “best interest contract.” Prior to this rule an advisor could recommend an investment that would pay them a hefty commission without the client’s knowledge. Now the advisor has to confirm that the investment is in the client’s best interest and to spell out any and all commissions the advisor would receive for the products they are selling.

The new rules will not be an issue for RWM as we have always acted as a fiduciary and put our clients’ best interests first. We know fees are a drag on performance and therefore we seek investments with very low expense ratios and that have limited turnover. By keeping costs to a minimum it increases the likely hood of better performance for the client. In addition, we receive no commissions, 12-b1 fees, or soft dollars. Our only source of income is the clearly stated investment advisory fee that we invoice you for each quarter.

While it has taken some time, it is good to see that higher advisory standards are being put into place and we believe it will significantly help investors.

 

Index Performance                                 March    YTD    Trl 1 Yr       

US Stock (Russell 3000)                                  7.04%    0.97%   -0.34%
Foreign Stock (FTSE AW ex US)                    8.31%   -0.36%   -8.28%
Total US Bond Mkt. (BarCap Aggregate)     0.92%     3.03%     1.96%
Short US Gov. Bonds (BarCap Gov 1-5 Yr)  0.23%      1.54%     1.60%
Municipal Bonds (BarCap 1-10yr Muni)     -0.07%      1.24%    2.86%
Cash (ML 3Month T-Bill)                                0.05%      0.07%    0.12%

 

About

Raffa Wealth Management is an independent investment advisor providing nonprofit organizations, high net-worth investors, and qualified retirement plans with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at www.raffawealth.com

 

There is no guarantee that any investment strategy, including those described here, will be successful. Any investment or investment strategy can lose money. Past performance does not guarantee or predict future results. You should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Raffa Wealth Management, LLC. This information was gathered from reliable sources but we cannot guarantee accuracy. Indexes do not reflect the fees associated with actual investments and such fees would reduce the performance illustrated.
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