New rules strengthen protections
When you walk into a financial adviser’s office, you expect them to put your best interests above all else — in the same way a doctor would, rather than, say, a car salesperson. But many people don’t realize that the rules financial professionals must follow vary, depending on where they work and what products they’re selling.
One of those federal regulations, which governs retirement plans, was just tightened: The Biden administration announced new rules Tuesday that will require more financial professionals to adhere to a higher standard when providing financial advice about your retirement money.
Starting Sept. 23, investment professionals who hold themselves out as trusted advisers will be required to act as fiduciaries — that is, they can’t place their interests ahead of the investor — when customers pay them for advice on individual retirement accounts, 401(k)s and similar buckets of tax-advantaged dollars.
The goal is to minimize conflicts of interest or at least ensure that they aren’t influencing investment professionals’ advice that lines their pockets at the customers’ expense. The rule, which will be published in the Federal Register on Thursday, will be fully effective in September 2025.
The changes, issued by the Department of Labor, which oversees retirement plans, close loopholes that made it easier for many investment professionals to avoid fiduciary status — including, for example, when workers roll over their savings from a 401(k) plan to an individual retirement account. Those transactions, which totaled nearly $800 billion in 2022, weren’t always covered by these investor protections, even though these sums often amount to a person’s life savings.
“If you’re a retirement investor looking for help with how to manage your retirement investments, it’s only reasonable that you get advice that is prudent, loyal and doesn’t involve misleading you,” said Tim Hauser, deputy assistant secretary for program operations of the Employee Benefits Security Administration at the Labor Department. “It shouldn’t matter what product you’re recommending, and that’s what the rule does.”
This isn’t the first effort to update the federal retirement law known as ERISA, which was enacted in 1974 to oversee private pension plans before 401(k)s existed. Strengthening its protections has been the subject of intense debate for more than a decade, over three presidential administrations.
Indeed, critics (including financial industry stakeholders) say the new regulation — initially introduced in October — was rushed, but the Labor Department has been working on different versions since it introduced its first proposal in 2010. The Obama administration issued a more stringent rule in 2016, but the Trump administration hit the brakes before it was fully implemented. An appeals court later struck it down in 2018. Agency officials said they took comments from the financial industry and others into account and made several changes that are reflected in the final rule. But Lisa M. Gomez, assistant secretary for Employee Benefits Security, said the investor protections remain. “There is nothing in these clarifications or changes that one should interpret as a watering-down or a real change in position from the proposal,” she said on a media briefing call.
When the onus is on individuals to save and invest for a financially secure retirement, with money that must last through advanced age, investor protections are paramount. Still, individuals might be wondering why they aren’t entitled to fiduciary-level advice on all of their money, all of the time, regardless of what account it sits in or what type of product they’re investing in.
Here’s an overview of how the rules have changed and what it means for you — and how to find fiduciary-level professionals, regardless of the political climate.
The regulation redefines who is considered an investment fiduciary. Before the changes, financial professionals had to meet a fivepart test before they were held to that standard — and one part stated that the person making the recommendation must provide the advice on a regular basis. That means one-time recommendations were not necessarily included, which left 401(k) rollover guidance at risk.
The new rule aims to level the playing field for all financial professionals — including investment brokers and insurance salespeople — who describe themselves as trusted advisers when providing advice about your retirement money. It doesn’t matter whether they’re recommending mutual funds, stock investments, insurance products like annuities, illiquid real estate investments — it’s all covered. Investment brokers selling retirement plans to businesses would also be held to the fiduciary standard.
Fiduciaries under the federal law known as ERISA must follow strict rules of conduct and avoid conflicts of interest. That means they can’t provide advice that affects their compensation, unless they meet certain conditions to ensure investors are protected.
This includes putting policies in place to mitigate those conflicts. Investment professionals must also be upfront with customers about their roles as fiduciaries — if they have conflicts, and many do, they must acknowledge their fiduciary status in writing.