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ased Pinney Insurance says the new rule won’t damage his own company to the same extent because 95 percent of the investments he sells aren’t retirement products and so aren’t affected. The other 5 percent, mostly retirement annuities, presumably will be subject to it, meaning Pinney Insurance will need to sign best-interest contracts with those clients. But he says it’s likely he’ll just quit selling those. Since best-interest contracts give clients the ability to sue, Pinney thinks the liability risks are just too high to keep selling annuities. As for purely fee-only advisers, even though they won’t face major changes, there’s one type of transaction they should pay close attention to under the rule: rollovers. When a customer seeks advice on rolling money out of a 401k to an IRA, the planner will need to be able to document that the advice given was in the customer’s best interest, says David O’Brien, board member at the fee-only National Association of Personal Financial advisers. They should also check that their client agreements comply with the language called for in the rule, he says. As for businesses that offer retirement plans, Paul says they should pay close attention since they could be on the hook too in a lawsuit or a DOL compliance check. The rule change means it’s more important than ever that they’re transparent with employees — showing fees as a line item on retirement plan statements and ensuring that the company’s retirement plan adviser is a fiduciary. “The DOL does investigate retirement plans,” he says. “You have to be able to demonstrate that you made a prudent decision and have that documented.” And if your adviser hasn’t at least had a conversation with you about the DOL rule change, you should be concerned, he adds. A few sectors can expect the new regulation to bring in new clients. For attorneys specializing in benefits law, business is going to be very good, Potter says. And one local firm, Auburn-based Riskalyze, is promoting tools that it says Ending poverty starts in school. Join us at SquareOneProject.org TERESA STEINBACH GARCIA on display through November 20 th at Comstock’s offices ART EXHIBITS | YOUTH PROGRAMS | RENTALS | CLASSES | GIFT SHOP Open Hours: Tues-Sun, 11:30 AM - 5 PM (free admission) 1 st Friday, Art After Dark: 7-10 PM ($10/$8 students/$5 members) 2 nd Friday, ArtAbout Reception: 6-9 PM (free admission) 212 D St., Davis, CA 95616 | 530.758.3370 | pencegallery.org Winter in Causeway November 2016 | comstocksmag.com 75
• FINANCE are tailored to help advisers adapt. Among other products, the company has developed software that allows advisers to set a risk number for each client based on their goals, automates the development of a portfolio that aligns with that risk number and creates documentation showing how each investment decision was aligned with that customer’s best interest — which will be critical in reducing advisers’ liability, says Riskalyze Co-Founder Michael McDaniel. (The Financial Planning Association of Northern California had no members willing to comment on the new rule. And several local advisers representing the country’s largest independent broker-dealers either didn’t respond or referred inquiries to their central offices, which didn’t respond.) THE FIRST DOMINO There’s an outside chance the new regulation won’t survive. Three federal lawsuits have been filed against the Department of Labor by national investment adviser groups and business advocates. On the other side, a coalition representing large financial planner associations has filed supporting documentation and arguments defending the DOL. Similarly, the rule has cleaved opinion among some Sacramento retirement professionals. Pinney believes inserting a cumbersome new rule into the marketplace will result in brokers dropping small investors; if so, those customers won’t have access to retirement advice, goes the argument. If a customer has even $500,000 to invest and the broker is charging a ½-point fee, that account will generate $2,500 a year — not enough to justify the legal risks, he says. On the other side, Chamberlain doesn’t think it goes far enough. Customers won’t bother to read the new bestinterest contract that the adviser asks them to sign, he says. And he points out that the rule covers only retirement accounts. That means customers won’t necessarily know that when their adviser switches to discussing their nonretirement accounts, that advice doesn’t have to meet a fiduciary standard. That separation of the financial-advice world into retirement and non-retirement territories could end soon. In May, Securities and Exchange Commission Chair Mary Jo White said her agency would propose a more sweeping rule next spring that will require all financial advice — whether related to retirement plans or not — to be subject to the fiduciary standard. O’Brien thinks the DOL rule has opened the door to that more dramatic change: “It’s the first domino,” he says. • Steven Yoder writes about business, real estate and criminal justice. His work has appeared in The Fiscal Times, Salon, The American Prospect and elsewhere. On Twitter @syodertweets, and online at stevenyoder.net. Providing trusted retirement advice for over 23 years. Hanson McClain Advisors is an Investment Advisor registered with the Securities and Exchange Commission (08/16). Published in August, 2011, 2012, 2013, 2014, 2015, 2016: Barron’s Top 100 Independent Wealth Advisors. Rankings reflects the volume of assets overseen by the advisors and their teams, revenues generated for the firms and the quality of the advisors’ practices. Barron’s© magazine is a trademark of Dow Jones L.P. 76 comstocksmag.com | November 2016
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