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The DOL Fiduciary Rule is Here NOW WHAT?

We can all go on and on about how the Fiduciary Rule is NOT in the best interest of our clients. How the little guy, who never had to pay a fee to advisors before, will now likely be doing exactly that – IF they can even find one.

I know many others are frustrated that this rule is here. Hopefully it will be significantly modified over the next few months. But, what is an advisor to do during this time? My best advice is to stick to math and science. Recommend “OPTIMAL” solutions. There is a difference between “the best solution” and “the optimal solution.” One of the huge problems with the Fiduciary Rule is that we are supposed to act in the “client’s BEST interests.” OK, that’s great, but WHO will determine what the BEST is? Is it the lowest fee product? What if that Vanguard fund falls 50% right before the client retires? Was that really the “best?” Or what if the market soars to 100,000 but the client was in a 60/40 portfolio. Was that really the “best?” NO ONE knows what the “best” is until after it happens. One of the key problems to this rule is that there is no guidance on what the “best interest” really means. They are leaving this to the COURTS to decide! Oh great, so now investment decisions are being decided by people who are NOT investment professionals.

We all know the problems, what are the solutions? When the Department of Labor asked for input on the rule (the most recent request), I argued for a Fiduciary “Process” – one that would focus on the “OPTIMAL” solution since no one knows what will be the best. What math and science focus on is the “optimal solution” – the one that will be the best more often than any other solution will be the best and it will never be the worst! Here is the Fiduciary Process I recommended based on my research of the math and science behind a successful retirement.

  1. You need to have a written plan. The plan should lay out the time frame, the risk profile, investment objectives, taking key retirement risks off the table, level of guaranteed lifetime income required, legacy goals, etc.
  2. The client should be taught how to maximize their social security benefits. For most people, Social Security is the largest retirement asset they have, yet many spend more time planning their summer vacation than learning how to maximize these valuable benefits.
  3. Some people are trying to retire too early – they haven’t saved enough money. A discussion of additional income by working longer or at least part time must be discussed with them.
  4. When they do retire, the leading PhDs who have studied retirement say they should cover their basic living expenses with Guaranteed Lifetime Income. Social Security and Pensions count – since they are Lifetime Income Annuities. But, if they do not provide sufficient income, this is where Lifetime Income Annuities from an insurance company fit. This is where many current Fiduciaries fail – they refuse to give their clients guaranteed lifetime income.
  5. You need to optimize the rest of the portfolio to protect against inflation. As important as income annuities are to the retirement solution, they often fail to adequately protect against inflation. You can add inflation riders and ladder income annuities to do this but here is where stocks, real estate, and commodities can fit. You can build a portfolio that will rise in times of inflation.
  6. You must have a plan for Long-Term Care. No retirement plan is complete without a plan for Long-Term Care. This is the #1 risk that most retirees fail to address and it can completely wipe out their entire life’s work.
  7. They need to be taught how to use their home equity wisely. For most baby boomers, their house is one of the largest assets that they own. There are reverse mortgages and Home Equity Lines of Credit that can do some amazing things to increase the success of a retirement.
  8. Finally, they need to have some sort of estate plan. Who do they want to get what? How much? This is where Life Insurance can help them transfer wealth to children, grandchildren and charities for pennies on the dollar.

See, if we had a process like that, everyone would win – clients, advisors, and companies! It wouldn’t matter if you were paid fees or commissions. Whether you preferred annuities or managed money – as long as you followed the process, the client would have an OPTIMAL retirement that is based on math and science – NOT somebody’s opinion.


Tom Hegna Tom Hegna, CLU, ChFC, CASL, is the author of 4 books on retirement. His most recent book, Don’t Worry, Retire Happy, was turned into a PBS Television Special that has aired in over 50 million homes in the US and Canada. Find out more about Tom www.tomhegna.com.

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