What fiduciary rules could mean for retirement investors -by Robert Powell

If — and it’s a big if at the moment — the Labor Department’s currently proposed conflict-of-interest rules become a reality as they are currently written, investors saving for retirement stand to benefit greatly in some ways and not in others, according to experts who were part of a panel discussion hosted by MarketWatch recently.
For instance, it’s likely those investing for retirement in IRAs and 401(k) plans won’t be sold something that’s not in their best interest, said Knut Rostad, president and founder of the Institute for the Fiduciary Standard McLean, Va. during the panel discussion dubbed The Fiduciary Quagmire.
“There is a difference between advice and sales,” he said during the discussion which was moderated by Mark Hulbert, a senior columnist for MarketWatch.

But investors will also face the possibility of having fewer and more costly investment options, according to two other panelists, Ira Hammerman, executive vice president and general counsel for the Securities Industry and Financial Markets Association in New York City and Bradford Campbell, of counsel with Drinker Biddle & Reath in Washington, D.C. and former Assistant Secretary of Labor of the Employee Benefits Security Administration.
“If it goes into effect (as written now), not only does it not work — which is its own set of problems — but it’s going reduce choices and make it harder for folks to get advice which is ultimately to their detriment,” said Campbell.

Provider	Products and or services offered	Paid by	Regulatory standard	Primary regulator
Broker (registered reps) 639,000*	Sale of stocks, bonds, mutual funds	Commission	Suitability	Finra
Registered Investment Advisers 11,000*	Management of assets	Fee (% of assets under management)	Fiduciary	SEC
Insurance agents 443,000*	Annuities, mutual funds, life insurance	Commission or fee	Fiduciary or Suitability -- varies by product or service	State insurance commissioners
Dually registered advisers 26,000*	Annuities, investments, stocks etc.	product or service dependent	Fiduciary or Suitability -- varies by product or service	SEC and/or Finra
*Finra, Investment Adviser Association, Bureau of Labor Statistics, Cerulli

If the rule is adopted as is

If the rule goes through as is, investors will likely have to worry a bit less about the conflicts of interest that exist in today’s retirement-advice industry. Advisers, for instance, will have to disclose fees and conflicts of interest in ways that they don’t today.
“They’ve got to promise in writing that they will act — that they [will] be a fiduciary,” said Rostad. “They’ll promise in writing to tell the truth. They will promise in writing to try to give objective advice. They will promise in writing to only charge reasonable fees. They will promise in writing to follow state and federal law. This is the essence, and they will promise in writing to have policies to ... ensure they are doing these things.”
But Campbell said the rule if implemented as is, especially given the requirements of what’s called the best-interest contract exemption (see definition below), could lead to problems. Fewer advisers will serve retirement investors and those investors will likely pay for more for services and products. And that could lead to investors not getting the advice they need, some panelists said.
“If you’re a small account, if you have an IRA brokerage account of let’s say $50,000 or less, the concern is you’re not going to be able to be serviced by your registered representative at the brokerage firm any longer because the rule that the (Labor Department) has proposed is going to be so complicated and convoluted and punitive to the brokerage firm that they can’t comply with it so that as a small customer you’re going to be left on your own,” said Hammerman. “You’ll be doing it yourself.”
During the panel discussion, it was noted that the White House Council of Economic Advisers has said that conflicts-of interest — which is the Labor Department is trying to address with its new rule — cost investors collectively $17 billion a year due to paying higher fees for lower performing investments.
But Campbell also noted that there’s a cost to no advice. “And it dwarfs the cost of so-called conflicts,” he said. “Most people in 401(k) plans and similar plans, IRAs, get no advice at all. And when they get no advice at all (the Labor Department) said they make $114 billion every year in investment mistakes and losses… The lack of access to advice has a cost.”
Another issue is that sophisticated investors could be precluded under the proposed rule from investing in complex securities, Hammerman said. “If you’re a customer that has developed some means, let’s say you have a couple of hundred thousand dollars after working for a long time and you have an IRA brokerage account, the Department of Labor is saying you could basically only have nine different types of investments in your IRA brokerage account,” he said. “We, the government, are going to tell you that you can no longer have IPOs, foreign securities, options.”
The panelists didn’t necessarily agree one the pros and cons of the Labor Department’s proposed conflict-of-interest rule, but they did seem to agree that if the rule is adopted as is, retirement investors will need to up their game.
Among other things, investors will need a new laundry list of questions to ask advisers before investing their money inside IRAs, 401(k)s, and similar retirement plans. “The bottom line is that investors should be no less diligent and no less careful in selecting and screening who they work with,” said Rostad.

What if the rule isn’t adopted?

If, however, the Labor Department doesn’t adopt its proposed or a revised conflict-of-interest rule, panelists said the onus will still be on the investor to be informed and educated. Investors still need to adopt a “buyer beware” approach to searching for and selecting an adviser.
“If the rule goes through or if it doesn’t go through, I think the impact or the importance for the individual investor really in many ways stays the same,” said Rostad. “And that is to not assume anything and to essentially verify in terms of what it is that’s being recommended, what it is that you’re paying, and what it is that you can expect from a relationship. In many ways that’s not going to change regardless of whether we go forward with the rule or not. So that I think is the bottom line for investors.”

Do conflicts put retirement investors at risk?

(3:56) Federal officials have proposed a fiduciary rule to try to solve the conflicts-of-interest problem that some say plagues the financial-advice industry. But will it help retirement investors? At a recent MarketWatch event, experts debate the issue.

My advice during the panel discussion was this: Investors ought to interview many different types of advisers, brokers, advisers, insurance agents and the like. That way they can get a sense of the many different types of advice in the marketplace and what might be in their best interest.
For his part, Hammerman said investors should be educated and aware of who is providing their advice. Is it a broker/dealer? Is it an investment adviser?
Others agree, to a point. “If the rule doesn’t happen and we go forward without it taking effect, I think what would behoove investors is to make sure they’ve asked the basic questions and understand who they’re dealing with, why they’re dealing with them, what it is they’re trying to get out of this relationship, ask the question: ‘Are you a fiduciary or not?’” said Campbell. “That may or may not be something that matters to you in each case.”

Does the rule address conflicts of interest?

During the discussion, panelists also debated whether the Labor Department’s proposed rule addresses the conflict-of-interest problems that retirement investors now face. In the main, panelists agreed that conflicts exist, and that it might impossible to remove those conflicts entirely.
“We have a huge problem,” said Rostad. “And it’s a problem of at least two different sides of the same coin. One side of the coin is the massive distrust among most investors in financial services, in Wall Street specifically. Massive distrust unlike anything we’ve seen since the 1930s. The other side of that coin is the huge problem we have in terms of what investors face on a very practical level every day under the current ERISA (The Employee Retirement Income Security Act of 1974) scheme. And that is massive amounts of conflicts of interests. Conflicts of interest everywhere. The rule as designed, in principle, I think takes the correct approach. I think in terms of the details there are lots of things that can be improved but the rule as designed is taking the correct approach in terms of trying to mitigate the conflicts of interest.”
Campbell doesn’t believe the Labor Department’s proposed conflict-of-rule addresses the conflict-of-interest problem. “There are always going to be bad actors and there are ways that we can address the rules,” he said. “This is a 40-year old regulation. It has elements that I think all of us would agree should be modified. But that doesn’t mean that the proposal DOL has put out is the right one to do that. I think that’s really the debate we need to be having. What is the solution to those problems?”

Broker/dealers and advisers

Hammerman wanted the record to show that “broker/dealers and investment advisers should be held to a fiduciary best interest of the customer standard.”
He said the organization for which he works, Securities Industry Financial Markets Association, (SIFMA), the lobbying group for the broker/dealer industry, has been on record for more than six years “advocating for the best interest of the customer standard.”
However, he said it’s not in the investor’s best interest that the Labor Department be the regulator that dictates how advisers — be they registered representatives (otherwise known as stockbrokers or registered investment advisers — serve retirement investors. “We have too many regulators looking at the same issue,” he said. “And unfortunately the Department of Labor is out in front. They’re taking the lead when the correct agency, really the pre-eminent securities regulator, the Securities and Exchange Commission (SEC), they should be the one taking the lead on this issue.”
To be fair, Hammerman said the Labor Department should have a seat at the table, but the SEC — the regulator that’s been dealing with this issue for 81 years — should be at the head of the table.
Of note, the Labor Department’s proposed rule is also designed to help investors make sense of the increasingly confusing number of providers of investments and advice. But Hammerman argued that the Labor Department’s proposed rule might lead to more confusion, fewer products and most costly products.
“Many, many years ago broker/dealers executed transactions and for that they received hefty commissions,” he said. “Literally hundreds of dollars to execute a trade. And investment advisers dispensed investment advice and charged a fee for that advice. And really the two models were separate. What has happened over the last many decades is a convergence. What we need to do is have the regulatory scheme catch up with what’s happened in the business. And we at SIFMA would like the SEC to take the lead in having that regulatory requirement be the same, a best interest standard, to benefit individual investors.”

BICE definition

The Best Interest Contract Exemption was developed to promote the provision of investment advice that is in the best interest of retail investors such as plan participants and beneficiaries, IRA owners, and small plans. ERISA and the Code generally prohibit fiduciaries from receiving payments from third parties and from acting on conflicts of interest, including using their authority to affect or increase their own compensation, in connection with transactions involving a plan or IRA. Certain types of fees and compensation common in the retail market, such as brokerage or insurance commissions, 12b-1 fees and revenue sharing payments, fall within these prohibitions when received by fiduciaries as a result of transactions involving advice to the plan participants and beneficiaries, IRA owners and small plan sponsors. To facilitate continued provision of advice to such retail investors and under conditions designed to safeguard the interests of these investors, the exemption would allow certain investment advice fiduciaries, including broker-dealers and insurance agents, to receive these various forms of compensation that, in the absence of an exemption, would not be permitted under ERISA and the Code.
Rather than create a set of highly prescriptive transaction-specific exemptions, which has generally been the regulatory approach to date, the proposed exemption would flexibly accommodate a wide range of current business practices, while minimizing the harmful impact of conflicts of interest on the quality of advice. The Department has sought to preserve beneficial business models by taking a standards-based approach that will broadly permit firms to continue to rely on common fee practices, as long as they are willing to adhere to basic standards aimed at ensuring that their advice is in the best interest of their customers.

‘The lawyers always win’: Advice for advisers was one focus of the MarketWatch-hosted panel discussion on the Department of Labor’s proposed fiduciary standard. Mark Hulbert summarizes the major pieces of advice that emerged.
When financial ‘advice’ is really a sales pitch: Conflicts of interest cost financial services consumers billions, but it’s not easy to let them know when they’re being sold something.

Culled from MarketWatch

Online skills are hot, but will they land you a job?-By Lauren Weber

Employers don’t recognize companies that offer many of these courses, so these credentials don’t carry much weight

Thinkstock

On LinkedIn, hundreds of thousands of users note on their profiles that they have taken online classes or earned certificates from coding boot camps.

But when Richard Fye, the top recruiter at IT firm Fino Consulting, looks at candidates’ profiles, those credentials aren’t what helps them get hired—not yet, anyway.

While his company is eager to hire data scientists, for example, “taking a class…doesn’t carry much value in recruiting,” he said.

Employers’ search for hires with up-to-the-minute technical and digital skills has given rise to a boom in online classes and tutorials. Course providers like Udemy and Lynda.com, along with coding boot camps and massive open online courses (MOOCs) such as edX and Coursera, promise to refresh workers’ skills or help them acquire expertise they didn’t get in college.
But those new credentials don’t carry much weight in hiring yet, recruiters say, because managers don’t trust or recognize many of the companies and organizations behind the badges and courses.
“This market is basically chaos,” said Anthony Carnevale, director of Georgetown University’s Center on Education and the Workforce. “With these credentials, there’s no one body setting a standard.”
Job seekers are frustrated, too. St. Paul, Minn. resident Adam Hook, 33, has taken dozens of classes from online providers such as Udemy, Coursera and Microsoft Virtual Academy. Mr. Hook is yet to land a full-time job and says he has heard from employers that credentials from online courses aren’t enough to cover his lack of a college degree.

The recognition of specialized skills could go in two directions, employers and labor market experts say. Independent groups could step in to develop standards for credentials, or employers could test more applicants’ skills during hiring, which could make some laurels—be it a bachelor’s degree or boot-camp diploma—superfluous.

A cadre of academic researchers, with guidance from business trade groups such as the U.S. Chamber of Commerce Foundation, is setting out to create standards. They are building an online registry where employers and workers can search credentials—such as a badge from an online academy—and see exactly what skills they reflect. The effort is supported by a $2.25 million grant awarded this year by the Lumina Foundation, which has set a goal that 60% of Americans should acquire high-quality, post-high school training by 2025.

“We want employers to be able to lay out the skill requirements of a job, and then find credentials that best match their criteria,” said Robert Sheets, a workforce expert at George Washington University, which is creating the registry with Southern Illinois University and the American National Standards Institute. A pilot version of the directory, with around 100 educational institutions publishing their credential information, will be available next spring or summer.

To convince employers that a badge is a sign of rigorous training, the group plans to ask companies about the credentials held by hires in particular roles—a sort of validation of any given course or badge, said Jason Tyszko, senior director of policy and programs at the Chamber of Commerce Foundation.

“Absent that,” he added, “people could be going through a lot of programs, spending a lot of money and time, and not coming out with anything that employers want.”

LinkedIn Corp. is piloting a similar program in Phoenix and Denver, asking employers about the skills they desire and the credentials of their new hires. Using that data, LinkedIn will allow users to find out which skills are required for a given role, and which particular courses or training sessions recent hires in that role have held. The platform will launch early next year in the two cities.

Even the White House is entering the fray. Earlier this year, President Barack Obama’s administration launched TechHire, an initiative to “fast track” training and job opportunities for people without traditional academic backgrounds. The program is expected to speed up validation of emerging credentials, in part by convincing employers to review their skill requirements and work closely with training organizations offering nontraditional coursework such as coding boot camps and online programs.

Meanwhile, employers may try harder to test candidates’ skills—in programming, spreadsheets or marketing—with online job simulations administered before, during or after an interview. At an HR technology conference in October, a host of firms demonstrated tests designed to assess a candidate’s skill in everything from basic math to drafting legal contracts.

Should those practices become widespread, a college degree or a technical certificate may become irrelevant, predicted Dennis Yang, founder of online learning platform Udemy.

“The most important skill in the employee base of the future is the ability to learn something new, and a willingness to do so. There are still very few people who have the motivation to do that,” he said.

For now, badges, one-off courses and other micro-credentials are meaningful mostly because they show a person’s openness to learning, recruiters say.

At Waste Management Inc., Melkeya McDuffie recently promoted an internal candidate to manage the trash hauler’s contingent workforce programs, in part because he had taken several MOOCs—massive open online courses—through Coursera.

“For me, that tipped the scale in favor of that candidate,” said Ms. McDuffie, the company’s senior director of talent acquisition. “I was not at all familiar with the course content. It was the fact that he had taken the initiative and could demonstrate a greater depth of knowledge,” she said.

Culled from The Wall Street Journal

How Retirement Benefits Will Change in 2016-By Emily Brandon

Retirement savers will get the option to participate in a new type of retirement account next year, the myRA. There will also be fewer Social Security claiming options for married couples and a small Medicare premium increase for some beneficiaries. Here are some of the important ways retirement benefits will change in 2016.
Introducing the myRA. The myRA is a new type of Roth retirement account launched in late 2015 that has no fees and is guaranteed by the government never to lose value. There is only one investment option, a Treasury savings bond with a variable interest rate that has averaged 3.19 percent over the past 10 years. The savings bond interest is not taxed while in the account and won't be taxed at all if you leave it in the account until after age 59 1/2. Savers who earn less than $131,000 for individuals and $193,000 for couples are eligible to contribute up to $5,500 per year, or $6,500 if they are age 50 or older. However, once the account balance grows to $15,000, or the account turns 30 years old, the money will be transferred to a private sector Roth IRA. "MyRA is designed to remove common barriers to saving and give people an easy way to get started," says U.S. Treasury Secretary Jacob Lew. You can contribute via direct deposit through your employer, by setting up a payment using your checking or savings account or direct a portion of your tax refund to the account.
No more claiming Social Security twice. Some married individuals who are 66 or older have been claiming Social Security benefits twice. They first collect spousal payments and then later switch to payments based on their own work, which will then be higher because they claimed it at an older age. However, workers who turn 62 in 2016 or later will not be able to claim both types of payments, but must select one or the other. "If you are 63 years old today, you will still have the option of doing this at age 66," says Tim Steffen, a certified financial planner and director of financial planning at Robert W. Baird & Co. "For anybody who is not 62 by the end of the year, the option of a restricted application is going away."
Stricter Social Security suspended payment rules. Social Security beneficiaries who don't need the money are allowed to suspend their payments and then resume higher payments at a later date due to the accumulation of delayed retirement credits. In the past, spouses and dependent children could claim payments based on your work record while your payments were suspended and continued to grow. However, beginning in May 2016, suspending your payments also suspends payments for anyone else receiving payments based on your work. "If filing and suspending was your optimal strategy, in order to do it you want to make sure you do it in the next 6 months," says Laurence Kotlikoff, an economics professor at Boston University and co-author of "Get What's Yours: The Secrets to Maxing Out Your Social Security." After that, spousal payments will not be paid while the retired worker's payments are suspended.
Higher Medicare Part B premiums for some people. Most Social Security recipients will continue to pay the same $104.90 Medicare Part B premium in 2016. This is the case because Part B premiums are prevented by law from climbing faster than Social Security payments for most existing beneficiaries and there will be no Social Security cost-of-living adjustment in 2016. However, people who newly enroll in Medicare Part B in 2016 will pay a slightly higher Medicare Part B premium of $121.80 per month. This increase was a last-minute fix in the 2016 budget bill that prevented a much larger premium increase to $159.30 for new beneficiaries. As in previous years, high income beneficiaries will pay higher Medicare Part B premiums. The Medicare Part B deductible will increase from $147 in 2015 to $166 in 2016.
Bigger saver's credit threshold. It will be slightly easier to qualify for the saver's credit in 2016. The adjusted gross income limit to claim the credit will climb by $250 to $30,750 for individuals and by $500 to $61,500 for married couples. "The Saver's Credit is a tax credit above and beyond the advantage of tax-deferred savings when contributing to a 401(k), 403(b) or IRA," says Catherine Collinson, president of the Transamerica Center for Retirement Studies. This valuable tax credit for low- and moderate-income retirement savers is worth between 10 and 50 percent of the amount contributed to a retirement account up to $2,000 for individuals and $4,000 for couples.

Culled from US News