You might have seen the recent news flurry about rules adopted by the Department of Labor that govern how financial professionals give advice with respect to qualified savings and IRAs. The changes are important because they would benefit everyday investors who are trying to build up and distribute their retirement savings.

I find this development especially satisfying because from the start of my career I have been working to create investments in the retirement and annuity Clearer guidance for individual investorsspace, emphasizing products that are easy to understand and put in place. These new rules would require financial advisers to abide by a “fiduciary” standard that puts their clients’ best interests before their own profits. They would have to disclose all fees and would not be allowed to push products only from companies they represent.

Registered investment advisors are already classified as fiduciaries that must put investors’ interests first. Brokers and insurance agents now fall under that category too, which means individual investors will get more information about the true costs of products, including fees and charges that can be difficult to find and understand.

This is how Thomas E. Perez, the Secretary of Labor, put it in an interview with The New York Times: “The marketing material that I see from many firms is, ‘We put our customers first.’ This is no longer a marketing slogan. It’s the law.”

Adjusting to the Rules

You will see the news articles continuing in the months to follow. There will be chest-thumping, lawsuits and repeal proposals. And, of course, like the hold-up on the Supreme Court nominee, you’ll hear “just wait until our candidate is in.” The Wall Street Journal even describes the rule as the beginning of the government takeover of retirement funding.

Forget the politics and focus on the substance.

I’m less concerned about the industry at-large since it will be given time to adjust. I’m more concerned about individual investors who may not get the advice they need.

One important aspect of the rule that proponents and opponents of the rule forget is that buyers/investors differ, first by age:

  • Millennials beginning to save need little help.
  • Gen-Xers and young Boomers beginning to plan for retirement need more help.
  • Older Boomers and members of the Greatest Generation need the most help.

Second, of course, investors should be advised based on their level of savings or wealth, which creates unique issues for each.

What these individuals need is:

  1. a planning approach that addresses the most important retirement issue – not running out of money.
  2. a hybrid system that provides basic education and guidance online, with human support for reviewing, refining and implementing the online plan.
  3. investment and protection products working in combination.

I am confident that the impact of the new rules will not be limited to qualified plans and rollover IRAs. There will be trickle-down effects to all retirement products and planning, whether or not the rules are formally extended to other sources of retirement savings.

Past is Prologue

I have been working on innovative investor-based financial products for my entire career. I developed the first variable annuity with a living benefit guarantee back in 1995, and took my company to $5 billion in sales. During a period of huge sales growth since the launch of this design, the industry largely failed to switch from a commission/surrender charge approach to an advisory fee/no-load pricing. Now the new rules may force that.

I also developed the Retirement Management Account (RMA) about 10 years later, which in effect anticipated these new rules. (It was called “the quintessential managed account” by Cerulli Associates.) It was a Rollover IRA account offered by investment advisors in a diversified portfolio of mutual funds that gradually converted to an income annuity providing guaranteed lifetime income. Based on studies we performed, it provided better results than the variable annuity in virtually every scenario.

Fortunately, there have been recent developments in the income annuity space as well as on the investment side that allow for better solutions than those above. We’ve already reserved a name for our newest innovation – IRA2Income.

However it all turns out, I’m not concerned about the rules or a government takeover of the retirement business. Aligning interests among investors, product providers and advisors is the key ingredient of any successful financial product.