The Way Advisers Handle Your Retirement Money Is About to Change
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 salesman. 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 on 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.