Barack Obama on Monday announced new rules governing financial managers and advisers which he claims will abolish “hidden fees that hurt consumers and back-door payments that help Wall Street brokers.”
However, savvy financial advisers are warning that the regulations will negatively affect millions of retirees, because the new rules come with a catch: they will effectively prohibit retired people from keeping their trusted financial advisers if they make new investments during retirement. Here’s how:
“The rule will say that if you’re an adviser with a 401(k) helping participants, and you want to look at a lifetime income option [for your client] then you as an adviser would be effectively blocked from working with that participant if there’s any fee difference,” Brian Graff, executive director of the National Association of Plan Advisors, told The Daily Caller, citing insider talk and a past Obama administration attempt in 2010 to push through similar rules.
If the fee you pay your financial adviser in retirement — for products like annuities — is even slightly higher than the fee you were paying your adviser when you were working and just had a 401(k) plan, then you will have to pay a 15 percent tax penalty on your total account value, Graff said, citing insider talk.
So if your 401(k) is worth $100,000, then you’ll have to pay a $15,000 penalty if you want to make new investments that would lead you to pay your adviser even one dollar more. Seniors might have to drop the advisers who help them with their 401(k) rollover.
“They have this view that you should always keep your money in the [401k] plan,” Graff said of the Obama administration. ”We think that’s a dumb idea. An adviser you trust shouldn’t be blocked from working with you.”“No one’s going to pay a 15 percent tax to keep their adviser,” Graff said. “This isn’t 95 dollars like the health care one. We expect that millions of 401(k) participants will be affected.”
“The irony is that you could then go down the street and get a new financial adviser who might charge you 200 percent more, and there’s no rule preventing that,” Graff said.
“Is it theoretically possible that you’ll have exactly the same amount of money in your rollover as you did in your 401(k)?,” Graff said. “No. Why then would you roll over?
“In the zeal to try to protect people they’re preventing people from being able to do what they want,” Graff added, noting that the potential rule is a “huge deal” in the financial industry.
Basically this is an attack on 401Ks and private retirement in general. It’s an attempt by the Obama Administration to steer private retirement away from the open market and into the government’s hands. Financial advisers will be so tightly regulated they will have no choice but to recommend investing in “safe” government bonds thus securing trillions for the government.
The rules will go through the regulatory process and are expected to go into effect in a few months. For more details from the White House go here. It’s time to talk to your advisors NOW so you’re not stung by these changes.