Biden Administration Issues Rule to Protect Retirement Savers from Biased Advice
The Biden administration has recently enforced a new regulation aimed at ensuring that financial advisors prioritize the best interests of retirement savers. This rule expands the scope of situations where brokers and intermediaries must act as fiduciaries, which makes them legally obligated to provide advice that prioritizes the client’s financial well-being.
The regulation also addresses conflicts of interest in two major areas of advice: rollovers from 401(k) plans to individual retirement accounts and the purchase of insurance products like annuities. This measure seeks to address concerns that certain financial professionals may recommend transactions that benefit them financially but may not align with the client’s best interests. The Labor Department estimates that Americans lose up to $5 billion annually due to conflicts of interest related to one insurance product, indexed annuities.
Experts Weigh In
Andrew Oringer, partner and general counsel at the Wagner Law Group, highlighted the significant amount of money involved in 401(k)-to-IRA rollovers and expressed concerns about compensation systems that could incentivize rollovers without considering the participant’s best interests. This is an area that has drawn the attention of the Labor Department.
However, industry groups argue that the regulation is unnecessary and could potentially harm the retirement savers it aims to protect. The American Council of Life Insurers asserts that the new regulation is similar to the one implemented under President Obama, which resulted in over 10 million investors losing access to professional financial guidance.
The Labor Department maintains that the final fiduciary rule significantly differs from the Obama-era regulation and emphasizes its focus on protecting investors without placing undue burden on the financial industry.
