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New rule could lead advisers to dump small investors

A new law may change the way financial advisers offer retirement planning and investments to consumers.

A new law may change the way financial advisers offer retirement planning and investments to consumers.

Set to take effect April 10, the new fiduciary rule handed down by the federal Department of Labor last April could leave smaller retirement investors out in the cold and frustrate financial advisers who serve small and mid-level wealth clients.

“The new rules make [fees] a level percentage of assets and require more [time-consuming] involvement,” said Michael Mills, an attorney and partner at Antheil Maslow & MacMinn LLP in Doylestown. “Those with $100,000 [or less to invest] may find it harder … on a fee-based system, to find the help they need.”

A byproduct of the new rules, which aim to give greater protections to retirement investment consumers, could leave investors scrambling for help.

New legal requirements could make it too time-consuming for financial advisers to handle smaller portfolios or advise those customers, Mills said.

And financial planners could become frustrated or overwhelmed with the industry and compliance regulations, while being more exposed to possible lawsuits and litigation under the new rules, Mills said.

The fiduciary rule timing requires initial compliance by financial advising firms by April 10, with full compliance required by Jan. 1 next year.

That means after April 10, financial planners and advisers, now considered fiduciaries, can be held accountable by their clients and could open the door to lawsuits if an investor thinks he’s been shortchanged or wronged in some way.

“No longer finding a suitable investment but putting their clients best interest first creates ethical obligations [requiring] a lot more due diligence,” said Loren L. Speziale, an attorney with Gross McGinley LLP in Allentown.

By setting the accountability bar higher, financial planners must be prepared to legally prove they’ve put their client’s needs first.

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