Will Biden’s New Retirement Rule Really Protect Your Savings?

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On April 23, the Department of Labor announced it had finalized its Retirement Security rule to “protect the millions of workers who are saving for retirement diligently and rely on advice from trusted professionals on how to invest their savings.”

This rule updated the definition of an investment advice fiduciary under the Employee Retirement Income Security Act and the Internal Revenue Code, according to an announcement.

This will take effect on Sept. 23, 2024, and will apply when “financial services providers give compensated investment advice to retirement plan participants, individual retirement account owners and plan officials responsible for administering plans and managing their assets,” according to the announcement.

“America’s workers and their families rely on investment professionals for guidance as they save for retirement,” acting Secretary Julie Su stated in the announcement. “This rule protects the retirement investors from improper investment recommendations and harmful conflicts of interest. Retirement investors can now trust that their investment advice provider is working in their best interest and helping to make unbiased decisions.”

Will Biden’s New Rule Actually Work?

According to a fact sheet, this move will protect retirement investors by requiring advice providers to follow high standards of care and loyalty when they make investment recommendations. In turn, according to the fact sheet, these advisers will have to:

• Give prudent advice.
• Never put their financial interests ahead of the retirement investor’s when making recommendations.
• Avoid misleading statements about conflicts of interest, fees and investments.
• Charge no more than what is reasonable for their services.
• Give the retirement investor basic information about the adviser’s conflicts of interest.

The Certified Financial Planner Board praised the administration, saying in a statement that this rule addresses regulatory gaps and protects Americans.

“CFP Board applauds the DOL for issuing the final Retirement Security Rule, which expands the definition of fiduciary advice under the Employee Retirement Income Security Act (ERISA),” according to the statement. “The DOL’s final rule addresses regulatory gaps and helps protect Americans from the costly effects of conflicts of interest by requiring financial professionals to provide retirement investment advice in their clients’ best interest.”

In addition, it said that the new rule aligns with investor expectations for retirement investment advice.

A recent survey “found that 92% of Americans expect financial professionals to provide retirement savings advice in their clients’ best interests,” the CFP Board added, while “97% of investors said they agree that financial professionals giving retirement savings advice should be required to act in the best interests of their clients, even for one-time advice.”

“Workers and retirees deserve a financially secure and dignified retirement,” it said in the statement. “The DOL’s Retirement Security Rule will provide investors with faith that their financial professional is delivering retirement investment advice in their best interest so that they can achieve their investment and retirement goals confidently and ethically.”

The rule was first proposed in October 2023, and according to The Council of Economic Advisers, Americans lose up to a whopping $5 billion a year due to conflicts of interest just in one retirement investment category: fixed index annuities.

“Today’s proposed Retirement Security rule by the Biden Administration expands protections for retirement savers, ensures sounder financial advice, lowers investment junk fees, and gives every American saving for retirement greater peace of mind about their portfolios,” the Council said in an October blog post.

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