New Regulations Would Restrict Your IRA/401(k) Choices
Do you pursue unconventional investing strategies within your retirement accounts? Or want the freedom to be able to do so?
Then you need to watch out for new regulations coming down the pike. The Obama administration recently moved again to limit your options when it comes to your retirement accounts. This time, they’re shutting off your access to financial advisors and brokers who specialize in alternative investments. Investments like real estate and precious metals.
The Department of Labor announced it intends to implement so-called “fiduciary” rules for retirement advisors by early next year. Under the new rules, advisors and brokers would be required to act in the fiduciary interests of clients.
President Obama himself ordered the new standard. He said, “I’m calling on the Department of Labor to update the rules and requirements that retirement advisors put the best interests of their clients above their own financial interests. It’s a very simple principle: You want to give financial advice, you’ve got to put your client’s interests first.”
On its face, it seems like a good idea. We’ve issued our own warnings to investors about conflicts of interest with financial advisors who get paid commissions to sell certain types of investment products. So why shouldn’t financial professionals be required to put clients’ interests first?
The problem is that many investors don’t look to their brokers for objective financial advice. They go through brokers to make transactions. Sometimes brokers are able to provide valuable services, such as providing access to obscure markets, without providing financial advice. Or charging the fees associated with fiduciaries.
The fiduciary rule would potentially eliminate many of the smaller, independent firms that lack the ability to comply with the new rules. Millions of investors who are satisfied with their current brokers could be forced to find new government-approved ones. All because government thinks it knows best.
Government Bureaucrats Think We’re Too Dumb to Manage Our Own Retirement Accounts
One section of the Labor Department’s proposed rules laments that “individual retirement investors have much greater responsibility for directing their own investments, but they seldom have the training or specialized expertise necessary to prudently manage retirement assets on their own.”
It’s not all that complicated to track the market using a mix of index funds. It’s a strategy that ends up outperforming most professional stock picking advice.
Of course, financial advisors do have their place. If you want advice that is free from sales pressure or other conflicts of interest, then opt for a fee-only advisor. You pay a fee for the advice, and that’s it. There are no commissions or conflicts.
But President Obama doesn’t think you are qualified to pick your own financial advisor. “Most consumers generally cannot distinguish good advice, or even good investment results, from bad,” according to the Obama administration.
So Obama administration officials are moving to centrally plan your finances. Their ultimate goal is to nationalize IRA and 401(k) accounts. They want to merge them into the Social Security system. Every step of the way, they’ll say it’s for your own good.
As C.S. Lewis famously warned, “Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end…”
The Investment Menu for Retirement Accounts Could Soon Shrink
In the name of helping you invest for retirement, the Obama administration’s new fiduciary rules would effectively eliminate some types of investments from IRAs and 401(k)s. Variable annuities that lack income guarantees would be gone. Specialty real estate investment trusts not listed on the exchanges and sold directly to investors would likely get the axe.
Self-Directed IRAs that hold precious metals and other alternative assets would become more difficult to obtain. Many Self-Directed IRA account custodians would be driven out by regulations. Those that remain would have to cope with higher compliance costs by passing them on to investors. (The Department of Labor’s own calculations estimate the regulations will cost $5.7 billion over 10 years.)
This is just the latest in a series of measures the Obama administration has taken to chip away at private retirement accounts. Over the past few years, the administration has been obsessively tinkering with the rules concerning tax-advantaged accounts. They’ve rolled out “MyRA” accounts that can hold only U.S. Treasury bonds. They’ve proposed a cap on the amount of wealth people can accumulate in retirement accounts. They want to restrict how people can use Health Savings Accounts. They even attempted revoking the tax benefits of 529 college savings plans. The attacks just keep coming.
Investors should stay on guard. Hold at least some significant portion of your retirement funds outside of qualified accounts where the government can change the rules at any time.