The Biden administration just finalized a controversial new retirement rule — here are 5 things you need to know now
Chicago, IL
|
June 14, 2024 07:00 AM Central Daylight Time
by Christy Bieber
While we adhere to strict editorial guidelines, partners on this page also provide us earnings.
Figuring out how to save for retirement is challenging. Unfortunately, if you want to turn to a professional for financial advice, that creates complications of its own.
That's because there are many different kinds of professionals, like certified financial planners, investment advisers and financial advisers, and there are different regulations governing each one. Trusting the wrong person can have devastating consequences.
The good news is the Biden Administration has stepped in to give investors more protection from conflicts of interest. The recently finalized Retirement Security Rule is aimed at ensuring these professionals actually work for the clients they serve. This rule isn't without controversy, though, as some argue it could actually make getting help harder.
To understand how the rule might impact you, read on to find out five key facts.
1. More advisers will be considered fiduciaries
A fiduciary is a person who is legally obligated to act in the best interest of the person whose money or property they are managing. They are held to a high standard so that people can trust them.
You might assume anyone providing financial advice in a professional capacity is a fiduciary. That's not the case under the current rule.
Right now, those offering one-time financial advice aren't considered fiduciaries, nor does the law require a fiduciary standard for those providing advice to workplace plan sponsors about 401(k) lineups or to anyone providing recommendations to purchase non-securities, such as real estate, fixed-income annuities, or commodities like gold.
"The regulation closes the loophole for one-time advice," said the U.S. Department of Labor Fact Sheet, adding that financial services providers often have "a strong economic incentive" to recommend that investors roll their workplace retirement accounts into one of their institution's IRAs or annuities.
The Retirement Security Rule broadens the definition of a fiduciary to include any financial service provider who is compensated to provide advice to individual retirement account owners, employers and plan fiduciaries.
Sponsored
Kiss Your Credit Card Debt Goodbye
Millions of Americans are struggling to crawl out of debt in the face of record-high interest rates. A personal loan offers lower interest rates and fixed payments, making it a smart choice to consolidate high-interest credit card debt. It helps save money, simplifies payments, and accelerates debt payoff. Credible is a free online service that shows you the best lending options to pay off your credit card debt fast — and save a ton in interest.
2. It requires investment advisers to work for you
The new rule also clarifies the exact duties advisers owe to you when acting in their fiduciary roles. Their obligations include providing advice that is:
- Prudent: It meets the professional standard of care.
- Loyal: Your interests are put first and advisers clearly disclose any potential conflicts of interest.
- Honest: The adviser isn't misrepresenting any information
- Fairly priced: Advisers cannot overcharge you or receive unreasonable or excessive compensation.
3. It could save Americans money
When investment advisers act in the interest of consumers — rather than recommending investment products to earn a big commission — consumers can save. Exactly how much depends on what you're invested in.
Morningstar, Inc. estimates that participants in workplace retirement plans could save as much as $55 billion in the coming ten years thanks to the Retirement Security Rule. It says over 80% of these savings would be experienced by small-plan participants, of which there are currently more than 20 million. Investors could save up to $5 billion annually that's lost to conflicted investment advice on fixed index annuities, according to the Council of Economic Advisers.
Sponsored
Discover the power of FreeCash – your ticket to easy money
Dive into a world of rewards at FreeCash where earning cash is as simple as a click. No gimmicks, just real cash for your time. Join the community of earners today and watch your wallet grow effortlessly.
4. It could make accessing advice harder
The rule sounds pretty great so far, so why is it controversial?
A number of lawmakers and industry groups argue it could actually make accessing retirement advice more difficult for the average American.
"It leaves retirement savers with fiduciary advisors as their only option for professional financial guidance," according to a statement by the American Council Of Life Insurers. "Fiduciaries typically work with clients with a minimum of $100,000 to invest, far more than most working-class Americans have in savings."
Senator Joe Manchin also warned in a statement, "If allowed to go into effect, the rule has the potential to cause many West Virginians to actually lose access to investment advice due to how broadly the rule defines fiduciary. Hardworking West Virginians and Americans need protection, not uncertainty when it comes to their long-term financial security, and they certainly do not want or need the federal government further involved in their personal retirement decisions."
5. It takes effect in September of 2024
If you're hoping these new protections will keep you safe from bad advice, don't get on the phone to an adviser just yet. The rule takes effect on September 23, 2024 although it will be another year beyond that for all of the requirements to take effect.
Once the rule is in place, you can feel more confident that the professionals you hire will act in your best interests. However, it's still important to research any provider you'll take advice from and to understand both how they charge and what their legal obligations are to you.
The right adviser can make all the difference in building your financial security but ultimately it's your money on the line so doing your due diligence is crucial.
Sponsored
This 2 Minute Move Could Knock $500/Year off Your Car Insurance in 2024
Saving money on car insurance with BestMoney is a simple way to reduce your expenses. You’ll often get the same, or even better, insurance for less than what you’re paying right now.
There’s no reason not to at least try this free service. Check out BestMoney today, and take a turn in the right direction.
Contact Details
Wise Publishing, Inc.
Aaron Young
+1 310-500-8744
aaron.young@wisepublishing.com
Company Website
