The retirement world is changing. A long-sought-after regulation by the Department of Labor was released in April. It goes a long way toward protecting retirement savers from brokers and insurance agents. Here is what you need to know.

The new ruling insists that those who advise investors on appropriate investments for their IRAs, 401(k)s and other tax-deferred savings plans must put the client’s interest above their own and the company they work for. In short, they must act as a “fiduciary” rather than simply recommend “appropriate” investments.

You see, an “appropriate” investment for someone with little investment experience might be an annuity or a target retirement fund. The fact that these securities might also have a very high cost (called an expense fee) or perform poorly over time doesn’t matter. They are still an appropriate investment. Most investors do not realize that their broker buddy and his company take advantage of this. It is why he has a new car every year and a swimming pool while savers like you lose over $17 billion a year in unnecessary fees.  

Readers may recall that I have been on a crusade for the last nine years in my columns to change these abuses. Despite enormous protests from their friends in Congress, the DOL ruling is in effect now. Brokers and insurance agents have a year to become compliant with the new regulations.

So what does this mean for you as a saver? It should reduce the fees that you are charged in your retirement plan. Remember, that independent research has revealed that over a 25 year period of savings in these plans, fully a third of the assets is consumed by these fees and expenses.

In past columns, I have written that over a 25-year period of savings in these retirement plans, fully a third of a retiree’s assets are consumed by fees and expenses.The new ruling, plus a wave of successful lawsuits by disgruntled retirees against companies whose plans charge exorbitant fees, have plan sponsors rethinking their plan offerings. As company managements realize that they (and not the brokers who advise them) are on the hook in these large class action settlements, a new attitude is emerging. High-priced mutual funds are being replaced by exchange traded funds whose fees are a fraction of the costs and whose performance is better 85 percent of the time.

This is no secret. We have been investing our clients in these low-cost, better-performing ETFs for years. It is why we are fiduciaries and brokers are not. Now, retirement advisers and their firms are required to acknowledge their fiduciary status, enter into a contract with their clients, and explain investment fees and costs clearly. In addition, they must have policies and procedures in place to mitigate harmful effects brought about by conflicts of interest and keep certain data on their performance. It is what we have been doing for years and, in my opinion, it is the only fair and honest way to do business.

Now, realize that these brokers (turned fiduciaries) can still charge you commissions, revenue sharing and 12b-1 fees (a kick-back from mutual fund companies they are recommending). The difference is that now you need to sign a contract agreeing to all of the above.

If you can’t get a plain English explanation from that person sitting across from you in his silk tie and dark blue suit, say goodbye. You should expect and demand an explanation for every charge and fee that they are proposing and how it compares to the competition. There is absolutely no reason that you should agree to a revenue-sharing scheme or paying 12b-1 fees, in my opinion. If you have any questions on the topic, shoot me an e-mail or call at the numbers below. The onus is on you to make the right decisions.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.