Department of Labor Regulating Your 401K April 16th, 2017
The financial services industry is undergoing its greatest upheaval perhaps in more than 35 years because the government came up with a brilliant new idea to pretend there is a crisis that they need to step in to save you. I have warned that there has been talk about taking over 401K funds which are about equal to the total national debt. There have been proposals that they just take control of that and stuff it by mandatory investment in government bonds. Some countries already require pension funds to be “conservative” and 85% of all money must be in government debt. The one thing we know, whenever government claims it is doing something to protect you, you can be sure the end result will only put more money in their pocket.
As of 2017, what is yours, will begin the process to become theirs. The new ruling from the Department of Labor (DOL) affecting financial advice related to retirement plans is pretended to protect consumers against high fees which necessitates the government stepping in to monitor your 401K. Next, no manager will be seen as competent and the Department of Justice will start to target small retirement managers to expose them for fraud that they can then turn into a justification for government to take over ALL 401ks. This is how the whole thing will unfold all because the off-budget expenditure (Social Security & Medicare) are up 66% during the Obama Administration and go negative next year. One way to cope with all of this is to simple merge the failed government managed funds with the private funds. Consequently, thousands of advisers around the nation are already scrambling to change their practices to fit the new regulations, which start to go into effect next January (with the balance in 2018). This coincides with the new international G20 regulation whereby all countries will start report on everyone sharing that info among themselves to hunt for taxes.
The Office of Management and Budget’s $17 Billion Dollar number for the 401K industry is too tempting for politicians to ignore when they are in desperate need of cash. They justify this fake seizure claiming retired people are being ripped-off with exorbitant fees, which is one of the biggest lies perpetrated by The Obama Administration or any Administration in the past 100 years. This even beats the Global Warming scam to raise taxes. The Obama Administration doesn’t count in that figure any fees they regard as “reasonable” compensation. To Obama, they are all unreasonable.
The propaganda government always rolls out is their favorite tool to enable some sinister plot to further their power. There is just a standard playbook. All politicians pretend to care for the people. Whenever they plan something sinister, they use props like children to surround themselves to pretend they are doing good. This is standard operational procedure. This time they care so much about your future they just can’t keep their fingers out of your pocket.
We begin to see dramatic changes that impact even the fringe advisers like those in the gold community. Telling people hyperinflation is coming and you should sell everything for only gold will rise will suddenly become illegal and probably criminal activity that the government can use as an excuse to seize everything. The consumer will end up having to pay for information that is separate and distinct from those selling the product.
The final rule means advisers will have litigation to fear if they can’t prove their retirement advice prioritized the client over themselves and they had no conflict of interest. Unquestionably, this is going to be a much bigger change than the industry expects. This will impact thousands of brokerage, advisory and insurance firms that offer free advice within the $25 trillion retirement services market as a whole. They will have to adjust all their operations and procedures to comply with the rule. Indeed, some of these changes will need to be drastic and will undoubtedly fundamentally shift the advice landscape as well as the investment industry.
As the DOL fiduciary rule begins to take effect next April, all financial advisers will be required to recommend what is in the “best interests” of clients when they offer guidance on 401(k) plan assets, individual retirement accounts or other qualified monies saved for retirement. This rule does not apply to after-tax investment accounts that may be earmarked as retirement savings or just investing. However, the back-office compliance departments will grow exponentially as a result. Citizens will have to sign documents searing the monies are not for retirement. The current standard of requiring that investment advice be “suitable” will be out the window. They’ll need to craft new administrative steps and invest millions in technology and training to meet the rule’s requirements. This will also mean advisers will face forced changes in how they are paid. However, the new rule doesn’t ban commissions or revenue sharing. Nonetheless, it requires advisers who accept them to have clients sign a “best interest” contract exemption. Of course, that will be Pandora’s box to open for lawyers, which they will of course do. The bottom-line means that the adviser will have to act in the client’s “best interests” and only earn “reasonable” compensation. The exemption also must disclose information to clients about fees and conflicts of interest. Thus, a client will be able to then sue the adviser for any fees he gets from someone else to promote an investment like precious metals or muni-bonds.
The nightmare that will unfold is that advisers who are really only domestic oriented will suffer losses for their clients and then be sued. The mere threat of increased liability will push many small manager/advisers away from a long tradition of charging clients based on transactions, to a compensation method that carries lower liability risks, that of billing clients a set fee. This means that paying someone a performance fee may gradually fade away. However, fee-based accounts typically don’t make money for firms and thus offer little economic sense for firms. Advisers will be forced to drop undersized retirement accounts leaving the little guy stranded. This will even impact insurance companies who do have high-commission generating annuity products. We are most likely going to see earning from companies like Lincoln Financial Group, Prudential Financial Inc., and MetLife Inc, decline. The DOL rule will undoubtedly limit investor choice and this may be the end-goal. The DOL’s final rule is increasing the pressure also on the SEC to approve a uniform fiduciary standard. This could have a serious impact on proprietary trading of banks as well.
So here it comes. The first step in regulating 401K and they will be looking to prosecute people for conflicts of interest to make an example of them to justify a further takeover.