DOL’s new 'fiduciary standard' rule: I say, 'Beware of the hidden agenda'

Doug Andrew

The Department of Labor has a new rule on the horizon regarding qualified retirement plans that may be delayed or rescinded by the Trump administration — and for good reason. It calls for financial professionals working with clients putting away money for retirement to be held to a “fiduciary standard.” To clarify, financial advisors acting in a fiduciary capacity are those who put your best interest ahead of their own. But behind this seemingly altruistic ruling, I see a hidden agenda: The DOL could be laying the groundwork to create its own cash cow.

Let me explain by first looking at the fiduciary issue. As a financial strategist and retirement planning specialist, I have assisted my own clients for more than 30 years and I always held myself to a fiduciary standard. At one point I was responsible for more than 3,000 clients in 13 Western states, diversifying their investments primarily in investment securities, such as mutual funds (regulated by the SEC) and insurance and annuity products (regulated by state insurance commissions). I held a Series 1 securities license (the predecessor to a Series 6, 7 and 63 combined), as well as an insurance license. I finally let all of them expire on the last business day of 2005 to become a consumer advocate.

Why? From 2006 forward, I wanted to dedicate the rest of my life to teaching people correct principles about safe investing and the best ways to save for retirement. This way, individuals could be empowered to govern their own investment decisions by relying on the one person who truly had their best interest at heart: THEMSELVES.

In helping people think through their own financial strategies, I often ask, “Did you lose money in 2007-2008?” (98 percent say “yes.”) Next I ask, “Do you think a crash like that is going to happen again?” (More than 80 percent say “yes.”) Then I ask, “Do you want to experience a repeat of what happened to your money and financial assets last time?” (Overwhelmingly, they emphatically reply “no!”)

I then move on to taxes, asking, “Do you think taxes will go down, stay the same or go up in the longterm?” (Most concur taxes will be going up and even if rates went down temporarily, many deductions would be taken away.) “So why postpone your taxes and harvest your retirement dollars when you’ll likely be in a higher tax bracket? Instead, you could have just paid tax on the seed money when tax rates were lower! Is a fiduciary really looking out for your best interest by having you postpone, compound and increase your tax liability to your retirement years? Then why is your money in the same tax-deferred financial vehicles that it was in the 2000s?”

Many investors take the advice of their fiduciary and continue on with their 401(k) and IRA strategy, without realizing that they aren’t willing to take those same risks they did during the Great Recession. But this can be dangerous.

The Wall Street Journal published an article Jan. 2 titled, “The Champions of the 401(k) Lament the Revolution They Started.” It reads, “The dominant vehicle for retirement savings has fallen short of its early backers’ rosy expectations; longer life spans, high fees and stock-market declines.”

Richard Cordray, the first director of the Consumer Finance Protection Bureau (who took office in 2012 under Barack Obama) reported that America did not have a debt problem (even though it is now approaching $20 trillion), because we have $23 trillion in Americans’ yet-to-be-taxed IRAs and 401(k)s. What does that tell us about how Uncle Sam views your 401(k)?

Looking back, most Americans with IRAs and 401(k)s that were invested in the market in 2007-2008 lost up to 40 percent. The previous administration proposed to “save people from losing” by encouraging Americans to take their IRAs and their 401(k)s and invest in U.S. Treasuries, for which the federal government would guarantee 3 percent.

More than 4,000 people have scaled Mt. Everest, but about 250 have died in the attempt. Guess when most got killed: not going up the mountain, but coming down. Just the same, when the government is hard up for tax revenue (they desperately are and will be for years to come), they’ll go after the people coming down the mountain in retirement.

Think about it: 84 percent of the government’s tax revenue comes from the top 25 percent of income earners — people making more than $70,000 a year. Usually at least one-third of a tax-deferred retirement nest egg — like an IRA or 401(k) — has a permanent tax lien on it. Any good CPAs, who would consider themselves in a fiduciary capacity, should rarely recommend a retiree take RMDs (required minimum distributions) and stretch the IRA to non-spousal heirs. It’s the worst place to leave money from a tax standpoint when both a husband and wife passes on.

Reliable sources have disclosed that the following was discussed behind closed doors under the previous administration. When, not if, the next crash happens (likely before 2019), the American public will be ready and willing to convert a large portion of their retirement savings into U.S. Treasuries for “safety.” Because of the power granted the DOL to “redefine” what the fiduciary rules are, it will be easy to impose further rules under that definition requiring licensed advisors (RIAs, Series 65, etc.) to diversify at least 30 percent of their clients’ qualified retirement assets into U.S. Treasuries or be subject to fines or license forfeiture. So the government will determine what’s in your best interest — by requiring that you loan your money to Uncle Sam.

Will such rules come to fruition? I certainly hope not. The government has never performed well when it exercises control on behalf of its citizens that it deems irresponsible. (The government’s mismanagement of Social Security funds is a prime example.) Yes, the wealth architects to whom I point my students will all comply with the fiduciary standard under a RIA and hold a Series 65 license, but they will also look out for their clients’ best interests by not directing savings to qualified retirement plans (that expose people to higher taxes and market instability). Instead they’ll recommend vehicles that can provide better liquidity, safety, solid rates of return and tax advantages.

Doug Andrew is a best-selling author, radio talk show host and abundant living coach.