JUST PLAIN TALK: Don’t bury the fiduciary rule: OPINION
April 11, 2018 by Buz Livingston
The Department of Labor’s fiduciary rule has had a long, strange trip, but like Mark Twain’s death, its demise has been exaggerated. To review, under the Employee Retirement Income Security Act of 1974, trustees have a fiduciary obligation to work in a participant’s best interest. In 2015, after years of contentious debate and vociferous howls from the financial services industry, the same obligation was extended to anyone providing retirement advice. In effect, the same protection an investor had with a 401K plan extended to an IRA rollover.
In response to the rule, 2017 variable annuity sales cratered failing below $100 billion for the first time in 20 years. Variable annuity fees run up to 3 percent annually and don’t hold up well in a fiduciary spotlight. But variable annuities aren’t always a bad thing. In Florida, investors can protect assets from creditors with a variable annuity. Income generated by a variable annuity is tax-deferred. Older variable annuities have guaranteed fixed options, as high as 4 percent with no sneaky fees. In a recent case, an inherited IRA doubled in value due to the annuity contract’s enhanced death benefit rider. These quirks are exceptions to the rule.
Unfortunately for investors, the Fifth Circuit Court of Appeals recently squashed the fiduciary rule. I see a Supreme Court case given the senior judge’s forceful dissent. Plus, the 10th Court ruled in favor of the fiduciary rule in a case regarding indexed annuities. Compared with variable annuities, indexed annuities are worse.
I once thought all annuities were the work of the devil, but I was wrong. Single premium immediate annuities (SPIA) should be part of your retirement planning discussion and consideration. While not suitable for everyone, SPIAs provide a lifetime income stream; given the demise of private pensions a SPIA fills that void. Clients of investment advisors tend to live longer; they have more wealth and thus better health. In addition to longevity credits, SPIAs reduce portfolio volatility and can’t lose value. Assuming our health remains good, my wife and I will strongly consider SPIAs during our retirement. She, in particular, has a genetic predisposition for comeliness and longevity.
Despite the legal wrangling, the fiduciary cat is out of the bag. Savvy consumers will seek advisors who act as fiduciaries. Advisors always have conflicts of interest; it’s unavoidable. Given today’s low-interest rates, a 3-4 percent fixed rate inside a retirement plan beats bond funds in a rollover IRA. Putting money into an SPIA means fewer assets to bill asset management fees. Just because an advisor sells or recommends an annuity does not put them on the fiduciary blacklist. I don’t sell annuities but that doesn’t make me a fiduciary. I don’t make blanket dismissals either, maybe that does.
You can’t always get what you want, but Buz Livingston, CFP can help figure out what you need. For specific recommendations, visit livingstonfinancial.net or come by the office in Redfish Village, 2050 Scenic 30A, M-1 Suite 230.
