On April 6, 2016, the Department of Labor announced new rules about how financial advisors provide advice on retirement accounts like IRAs.  The new rule mandates that advisors must act as fiduciaries on retirement assets.  This means that advisors must act in the client's best interest.  Shockingly to many, this was not already the case.

In light of this development, Leon LaBrecque, managing partner and CEO of LJPR Financial Advisors, suggests asking your investment advisor the following questions to establish a baseline of communication and arm you to take the next best steps.

1. How are you getting paid to offer this advice?  Fee or commission?  How much?

2. How long have you been in the business and how long with your firm?

3. Are you intending to recommend products that would warrant a best interest contract exemption (BICE)? (Tip: If you sign a BICE, understand how your advisor is being paid)

4. What is included in my services?  Financial planning?  Tax planning?  Estate planning? (Tip: Make sure it's not just insurance sales)

5. What are your credentials? CFP?  CPA? CFA? AIF?

The old way

Stockbrokers, registered reps and commission-based advisors have been working under the suitability standard.  This meant that until now your rep could sell you a product if it was suitable for you, and 'suitable' had a loose definition. As long as it was a reasonably good fit, the advisor had no obligation to sell you the least expensive or best product for your needs. Under suitability, the broker's duty was to himself and the broker-dealer, not necessarily to the client. 

The new way

The DOL is now implementing the fiduciary standard, which means the advisor must act in the best interest of the client.  With a fiduciary standard, the advisor puts the client's interests first, making sure clients' needs come before broker profits. Studies show that over 70 percent of advisors are opposed to the rule, which roughly correlates to the percentage in the commission-based business.  Registered Investment Advisors and fee-only planners have been using this standard for decades, charging a fee for investment advising, rather than a commission. Most consumers aren't aware there is a choice.

"We have seen a lot of people, particularly retirees, who were sold expensive, low-performing products," said LaBrecque, whose firm LJPR Financial Advisors is a fee-only RIA in Troy, Michigan. "I'm encouraged by the DOL development. Shouldn't all financial advisors always put their clients' interests first? This new rule is forcing that, and commission-based advisors are panicking. But we're focused on the clients, as always."

LaBrecque believes the new rule will help clients understand the services they are receiving, and he urges all individuals with an IRA or a 401k to learn more about their advisor and the products they're buying. He also advises to watch out for a loophole, the best interest contract exemption, which allows an advisor to recommend products outside the clients' best interest if a form is signed.

"Bottom line, the educated consumer is the better consumer," continued LaBrecque. "Advisors should be helping their clients learn how to make better financial decisions, not just trying to make money off of them. This rule is a huge step in the direction of protecting and empowering consumers, and we venture to guess the industry will survive just fine."