New rules to strengthen safeguards for consumers who are saving for retirement put in place more rigorous standards for brokers and other financial professionals who provide retirement investment advice.
Under the new rules, released today by U.S. Department of Labor, advisers will be held to higher standards that require them to put their clients’ best interest ahead of their own financial gains, said Consumers Union, the advocacy arm of Consumer Reports.
“This is an important step that could help protect the retirement security of millions of Americans,” Pamela Banks, senior policy counsel for Consumers Union, said. “The old rules were outdated, and these changes are long overdue.”
When consumers are planning for retirement, their adviser should focus first on what makes sense for their finances, not the advisers, Banks said.
“Too often, some financial advisers may steer you towards investments with high fees and lower returns that benefit their bottom line, while leaving you paying a heavy price,” she said. “As we review the details of these final rules, we are optimistic that they will help remove conflicts of interest that can jeopardize a happy, financially-healthy retirement.”
Retirement savers could hold on to tens of thousands of dollars more over their lifetimes thanks to this new “fiduciary rule.” While some consumers assume financial advisers act in their clients’ best interests, that hasn’t always been the case, Banks said.
While consumers have been able to turn to fee-only advisers, also known as fiduciaries, who acted in their best interest, they also had the option of using commission-based advisers, such as stockbrokers, who were only required to adhere to what is known as a “suitability standard.” That meant they could provide their clients with investment options that were considered suitable for their needs, but might come with high fees that benefited the advisers.
Under the new rules, which go into effect by January 2018, all financial advisers, whether fee-only or commission-based, will have to adhere to the same standards. They’re required to make customers aware of their right to complete information on the fees charged and direct them to a web page or written material disclosing compensation arrangements.
Advisers will be required to charge only a “reasonable” compensation, and they must avoid misleading statements about fees and disclose any conflicts of interest.
