President Obama and the Department of Labor have proposed some new regulations for financial advisors who deal with retirement funds. The new regulations will affect those who handle structured settlements and advise people about them. Structured settlements expert Mark Wahlstrom discusses the new proposals in this report.
The proposed regulations would make the major change of putting financial advisors into a fiduciary relationship with clients, or at least holding them to a fiduciary standard. This is a change from the existing suitability standard of disclosure and care towards the customer. See section 202 (a) (11) (B) and (C) of the Investment Advisers Act of 1940. The advisor would have to act in the best interest of the client in several regards, including selection, pricing, and the compensation of the product. The suitability standard requires only that the product be suitable for the client.
The administration claims that clients are losing $17 billion yearly in overcharges, bad investments, and higher ongoing charges. The insurance industry and the broker dealer community has opposed the new standard for quite some time as being excessive in relation to the standard of care already in place. However, as Wahlstrom points out, with the president and the Department of Labor behind it, “this is a freight train that’s coming down the tracks.” The new regulations will probably be implemented.
Wahlstom explains that this development is important for structured settlement planners because it appears to be the beginning of a change in attitude and of a required care standard for those who give financial advice. The proposed fiduciary standard change will apply to those who deal with retirement funds, including 401(k) and IRA funds. Wahlstrom says that, once this becomes the norm for those handling retirement funds, there will be a movement to apply the standard more broadly.
For most financial advisors, the only discretionary management money is retirement money. If the fiduciary standard is applied in a broader way, as Wahlstrom believes will happen, it will drive people toward big institutional entities that can afford the people and resources that would be involved in complying with the new standard. The new standard will also create liability issues to be dealt with.
Wahlstrom’s advice: Handle yourself in any structured settlement as though you were in a fiduciary relationship with settlement recipients. Be transparent in your pricing. Explain how the investment companies are selected. Discuss your clients’ overall needs and issues. Write it down and document it. Wahlstrom points out that most structured settlement funds, large and small, “are aggressively going into asset management.” A lot of money is going into alternative investments. “If you’re not working on a fiduciary standard on those, I think you’re at peril.”
Structured settlement planners need to disclose options as well as their track record in past structured settlement plans. The Department of Labor is “the big gorilla,” says Wahlsrom, "and big gorillas and hurricanes . . . go wherever they want to go and do whatever they want to do.” Everyone in the structured settlement field should be planning now for what Wahlstrom believes is inevitable.
Mark Wahlstrom, President of Wahlstrom & Associates, founded of one of the nation's first plaintiff only structured settlement firms in 1983 and is a renowned specialist in settlement planning, structured settlement annuities, structured legal fees, and the administration of large, complex multi-claimant settlements using qualified settlement funds and trusts. He has also become widely known over the last decade for his innovative development of an online broadcast platform, Sequence Media Group, upon which he has produced hundreds of hours of shows for The Legal Broadcast Network, and The Settlement Channel, with the content being of interest to attorneys, paralegals, judges and settlement professionals all over the United States. The Legal Broadcast Network is a featured network of the Sequence Media Group.