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Advisors Repapering Your Account: What to Know

RepaperingThe White House’s report on conflicting financial advice estimates that there is a staggering $1.7 trillion invested in products that generate conflicts of interest for advisors—meaning products that advisors earn a commission for selling to clients—leading to a loss of 12 percent in a retirement account’s value over 30 years.

To combat this, the Department of Labor is enacting a new rule requiring advisors to be held to a fiduciary standard, meaning they need to always act in your (the client’s) best interest. If an advisor still desires to sell conflicted products, they will be required to have you sign a Best Interest Contract Exemption (BICE). This contract also gives you the right to partake in a class-action suit against your advisor if the conflicted product is not ultimately in your best interest. (For related reading, see: Do You Need to Change Your Financial Advisor?)

What to Ask Before the Switch

If you employ a traditional financial advisor who was not previously bound to a fiduciary standard, there is a very good chance your money is part of the $1.7 trillion losing returns because of conflicted advice. And when your advisor comes to you to “repaper”, i.e. have you sign a BICE or any other paperwork related to their switch to a fiduciary, you should find out how much your advisor was making from commissions on products that may not have been in your best interest.

Traditional advisors are worried about you saying, “hold on a second” when they begin compliance with the fiduciary rule. As this AdvisorHub article points out, “brokers who are heavily concentrated in retirement accounts may delay moving until they determine if they will have to “repaper” commission accounts into fee-paying accounts because of the rule.” Paul Reilly, CEO of traditional financial advisory company Raymond James, said that “Raymond James itself is looking closely at each prospect’s book to determine how much it is flavored by IRA accounts that could become less profitable.” During the campaign against the DoL rule, Reilly encouraged Raymond James employees to help oppose the  DoL’s fiduciary proposal. Additionally, if an advisor is planning to transition, many are scrambling to do so before November 11th, after which FINRA will notify all of their clients of the transition and encourage clients to ask what it means for them financially.

Now that the fiduciary rule is going into effect, firms like Raymond James are sweating the switch to fee-only fiduciary accounts and increased oversight of their activities by regulators. Make sure you’re prepared for that conversation with your advisor by reading my previous article, 6 Questions to Ask Your Financial Advisor. If you learn that you are one of the many, many investors losing 12 percent due to conflicted advice and want to work with an advisor who will work only in your best interest, you may want to schedule an appointment with an advisor that doesn’t have such conflicts. (For related reading, see: Going the ETF Route? What You Should Know.)

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
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Brad Sherman

About Brad Sherman

Brad Sherman has over a decade of experience in the financial services industry. He founded Sherman Wealth Management because he believes that every client deserves the highest level of individualized attention, regardless of their age or the size of their financial profile. He prides himself on being an advocate for his clients, providing a Fiduciary, fee-only service, designed to make clients feel comfortable with their investment choices and strategies. Brad lives in Rockville, Maryland, and enjoys football – both fantasy and real, baseball – especially his beloved Nats, and Nerf Ball with his young son.


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