Recently, the U.S. Department of Labor proposed regulations that require advisors who are paid to help people plan for retirement to be “fiduciaries.” Advisors must ensure that their clients’ interests are considered more important than their own. These proposals apply to advisors who provide advice on 401(k), IRAs, and other financial products.
This goal is to improve protection for consumers as well as the professionals who manage retirement savings. It also aims to reduce excessive transaction fees and investment management fees, which can lead to underperformance. The Labor Dept. The Labor Dept. estimates that savings could be between $210 billion and $430 billion over 10 years. This will directly increase retirement savings.
However, the new proposals are facing a lot of resistance from the financial sector, including from the Financial Industry Regulatory Authority and Securities Industry and Financial Markets Association. Although the intent of the proposals may be admirable, some financial industry executives claim that the requirements are too specific and difficult to meet. This will result in higher compliance and administrative costs for investors. They suggest that middle-income investors might also have less access to investment products and services.
Some consumer advocates and professional organizations support the proposals on the other hand. The CEO of Merrill Lynch also publicly called on the financial sector to cooperate with the Labor Dept. The proposed rules. The large advisory firm Financial Engines publicly praised the department’s efforts to promote nonconflicted advice in investment.
Evidence also suggests that investors may be confused as to whether their advisor is a fiduciary. A study found that 4 out 5 investors believe their advisor acts in their best interest or is a fiduciary. The Labor Dept. clearly disagrees. The Labor Dept. believes otherwise.
What does this all mean for individuals who are saving for retirement? These proposals reinforce the message that optimizing your investment returns is key to minimizing your investing costs. You’ll be able to accumulate thousands more dollars by the time that you retire.
Representatives from the financial industry claim that education and disclosure are sufficient to stop some of the most serious abuses. Let’s look at some of the abuses committed by the Labor Department in this spirit. These are the types of abuses that you should avoid.
Many insurance and investment products are reasonably priced and advisors will always put the clients’ best interests first. It is your job to search for them.
Bottom line: It’s best to be careful when it comes down to your retirement security. Although federal regulations and rules may provide some protection, it’s your responsibility to protect your interests.
