Friday, February 20, 2015

Caution to Individual Investors Using 'Professional' Advisors for 401(k) and IRA Accounts ... Beware of Both Hidden and Not-So-Hidden Fees and Commissions Charged by Stock Brokers and Money Managers

Someday soon our 'friendly' federal government may actually do something which, if implemented, will in fact help individual investors and the middle class. It pertains to stock brokers working for their clients with respect to individual retirement accounts and not simply trying to get individual investors to pay high fees and commissions for inferior service.

In other words, the idea is that stock brokers and other money managers will have to put the interests of their customers ahead of their own when pricing and advising clients about what financial products they should buy, including mutual funds. So while most people probably believe that's already the case, it simply isn't true -- at least not yet.

Retirement-Account Standards May Tighten is subtitled 'Brokers Would Have to Put Client's Interests First' and tells the story:

"Brokers who recommend retirement-account investments would have to put their clients’ interests ahead of personal gain under rules expected to be endorsed by the Obama administration as soon as next week.

At present, the brokers’ recommendations for 401(k) plans and other retirement accounts generally have to be “suitable,” a weaker standard that critics say permits high fees that eat into investors’ returns. . . .

The White House memo argues that investors lose as much as $17 billion annually in retirement dollars—or “at least” 5% to 10% of their retirement savings over 30 years—because of “excessive fees” and “conflicted” advice—amounts disputed by the industry. . . .

The standards, if finalized, could end up cutting into payments brokers and others collect from mutual-fund and insurance companies when they sell plans to retiree clients. Brokers have pushed back against stricter rules, warning they will drive up costs and reduce retirement choices. . . .

They won’t bar commissions for those who sell retirement investments but would ensure brokers and other financial professionals have an overriding responsibility to keep their clients’ best interests when giving financial advice. . . .

Labor Department officials declined to spell out details of the proposal. But the measure is expected to soon advance to the White House Office of Management and Budget for review, after which it would be subject to public comment."

Summing Up

Caveat emptor, aka 'Let the buyer beware,' applies to everything we purchase, including stocks.

The more we know about the 'why' of somebody being willing and anxious to sell us something, the better able we are to make sure we get what we pay for.

That's the cold cruel world we inhabit, and the sooner young people understand that, the better decisions they will make about the colleges they attend, the loans they take out to attend those colleges, the credits cards, cars and homes they buy on onerous credit terms, and so forth.

Then they will have time to reflect on how to save and invest their hard earned money over the long haul instead of needlessly paying off loans at high rates on interest --- and eventually the principal too, of course.

That's my take.

Thanks. Bob.

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