The Biden administration recently released a final rule aimed at regulating the investment advice given to retirement savers by advisors, brokers, insurance agents, and other financial professionals. This rule, issued by the U.S. Department of Labor, expands the scope of when intermediaries must act as fiduciaries, ensuring that their recommendations are in the best interests of the savers. The new regulation is set to take effect on September 23, following a previous rule proposal in October. The goal of the rule is to address conflicts of interest in retirement accounts, which often lead to advice that may not be in the customers’ best interests.
According to the Labor Department officials, the current retirement rules do not provide adequate protections for savers. Lisa Gomez, assistant secretary of the Employee Benefits Security Administration, highlighted that conflicts of interest in retirement advice can result in significant financial losses for customers. The new fiduciary rule focuses on two key areas of advice: rollovers from 401(k) plans to individual retirement accounts and the purchase of insurance products like annuities. Financial professionals may sometimes prioritize transactions that benefit them financially over what is best for the client, leading to erosion of Americans’ savings.
The final rule by the Biden administration will be implemented in two phases. Starting September 23, financial industry professionals must acknowledge their fiduciary status when working with clients and adhere to impartial conduct standards. These standards require financial professionals to provide personalized investment advice that is prudent, loyal, and truthful, and charge reasonable fees. The remaining parts of the rule will come into effect in September 2025, allowing time for the industry to adjust to the new regulations.
While the Labor Department aims to protect retirement savers through the final rule, industry groups have expressed concerns about the necessity and potential harm of the regulation. The American Council of Life Insurers, a trade group, argued that the new regulation is similar to a rule established during the Obama administration, which resulted in millions of investor accounts losing access to financial guidance. Industry groups believe that existing federal and state rules administered by organizations like the Securities and Exchange Commission and the National Association of Insurance Commissioners already provide robust consumer protections for retirement savers.
The Biden administration’s final rule on retirement advice represents a significant step towards protecting the interests of retirement savers. By expanding the scope of fiduciary responsibility and addressing conflicts of interest, the regulation aims to ensure that financial professionals act in the best interests of their clients. While there are concerns from industry groups about the impact of the rule, the Labor Department is committed to leveling the playing field and providing enhanced protections for retirement savers. It remains to be seen how the industry will adapt to the new regulations and how effective they will be in safeguarding Americans’ retirement savings.