New Rules Causing Rippling Effect in Retirement Planning Industry

“It has its good and bad points,” said Andrew K. Sledd, a certified public accountant and senior manager at Keiter, an accounting firm in Henrico. “It depends on the class of investor.”

What works for one investor may not work for another, he said. “The Department of Labor is saying it wants everyone on a level playing field,” Sledd said.

The government, for example, is steering the industry toward fee-based compensation instead of commissions. It requires that compensation at all times be “reasonable.” Industry experts interpret “reasonable” to mean an annual fee of 1 to 1.5 percent of any given retirement portfolio.

That means commission products such as a variable annuity with high up-front fees could be overhauled or discontinued. A variable annuity is a tax-deferred product that pays the participant a level of income in retirement based on the performance of the investments. A fixed annuity pays a guaranteed payout.

For a young person who plans to hold an investment for 30 to 40 years, it could be cheaper to pay an up-front commission of 6 to 8 percent than a 1 percent annual fee, Sledd said.  Access full article.