The Biden Admin Just Finalized a Controversial New Retirement Rule — Here Are 5 Things You Need to Know Now
Figuring out how to save for retirement is a real challenge. Unfortunately, if you want to turn to a professional for financial advice, this creates complications.
This is because there are many different types of professionals, such as certified financial planners, investment advisors, and financial advisors, and there are different regulations governing each of them. Trusting the wrong person can have devastating consequences.
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The good news is that the Biden administration has stepped in to provide investors with better protections against conflicts of interest. The recently finalized Retirement Security Rule aims to ensure that these professionals actually work for the clients they serve. This rule is not without controversy, however, as some argue it could actually make it more difficult to get help.
To understand how this rule could impact you, read on to learn five key facts.
1. More advisors will be considered fiduciaries
A fiduciary is a person who is legally required to act in the best interests of the person whose money or property they are managing. They are held to high standards so people can trust them.
One might assume that anyone providing financial advice in a professional capacity is a fiduciary. This is not the case under the current rule.
Currently, those who provide one-off financial advice are not considered fiduciaries, nor does the law require a fiduciary standard for those who provide advice to plan sponsors in the workplace regarding 401(k) queues or to anyone providing recommendations for the purchase of securities other than securities, such as real estate, fixed income annuities or commodities such as gold.
“The regulation fills the gap in one-off advice,” the U.S. Department of Labor fact sheet said, adding that financial service providers often have “a strong economic incentive” to recommend that investors transfer their workplace retirement accounts. in one of their institution’s IRAs. or annuities.
The Retirement Security Rule expands the definition of a fiduciary to include any financial service provider who is paid to provide advice to individual retirement account holders, employers, and plan fiduciaries.
2. It requires investment advisors to work for you
The new rule also clarifies the exact duties that advisors owe you in carrying out their fiduciary duties. Their obligations include providing advice which is:
Prudent: It meets professional standards of care.
Loyal: Your interests are put first and advisors clearly disclose any potential conflicts of interest.
Honest: the advisor does not distort any information
Fairly Priced: Advisors cannot charge you too much or receive unreasonable or excessive compensation.
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3. It could save Americans money
When investment advisors act in consumers’ best interests – rather than recommending investment products to earn a big commission – consumers can save money. The exact amount depends on what you are investing in.
Morningstar, Inc. estimates that corporate retirement plan participants could save up to $55 billion over the next ten years thanks to the Retirement Security Rule. It indicates that more than 80% of these savings would be achieved by participants in small plans, of which there are currently more than 20 million. Investors could save up to $5 billion a year due to conflicting investment advice on fixed-index annuities, according to the Council of Economic Advisers.
4. It could make accessing advice more difficult
So far the rule seems pretty interesting, so why is it controversial?
A number of lawmakers and industry groups say it could actually make it harder for the average American to access retirement advice.
“This leaves retirement savers with fiduciary advisors as their only option for professional financial advice,” according to a statement from 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 it goes into effect, the rule could potentially cause many West Virginians to lose access to investment advice due to how the rule defines fiduciary . Hardworking West Virginians and Americans need protection. , no uncertainty about their long-term financial security, and they certainly don’t want or need the federal government to be more involved in their personal retirement decisions.
5. It comes into force in September 2024
If you’re hoping these new protections will protect you from bad advice, don’t call an advisor just yet. The rule goes into effect on September 23, 2024, but it will be another year before all the requirements come into effect.
With the rule in place, you can be more confident that the professionals you hire will act in your best interest. However, it is always important to research any supplier you seek advice from and understand both how they charge and what their legal obligations are to you.
The right advisor can make all the difference in establishing your financial security, but ultimately it’s your money that’s on the line, so doing your due diligence is crucial.
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This article provides information only and should not be considered advice. It is provided without warranty of any kind.
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