The US government has proposed a new set of protections for retirement savers, with the main aim being to protect against “junk fees” and conflicts of interest.
Typically, retirement means a party, possibly a gift from an employer, and then proceeding to transfer a 401(k) retirement account into an individual retirement account (IRA).
However, this transition can sometimes be accompanied by substantial fees, prompting the U.S. Labor Department to scrutinize the magnitude and purpose of these charges.
The department has put forth a proposed rule that would establish the fiduciary standard for fund managers, financial advisers, brokers, and insurance agents, which would make sure that they act in the best interests of their clients.
While federal law mandates that companies managing employee retirement accounts adhere to the fiduciary standard in their management, the same standard does not currently apply to IRAs or rollovers.
The revised definition of an investment advice fiduciary would be applicable when financial service providers offer investment advice in exchange for a fee to retirement plan participants, IRA holders, and others. The aim of this rule, as stated by the Labor Department, is to target financial advisers who prioritize their interests over those of their clients.
Officials from the department say that self-serving advice and “junk fees” have the potential to impact the performance of retirees’ accounts. They cite an analysis of a single investment product, fixed index annuities, which suggests that conflicted advice may cost savers up to $5 billion annually for this product alone.
Furthermore, the Labor Department is proposing amendments to the list of existing administrative prohibited transaction exemptions to safeguard investors’ rights.
The government contends that these changes could enhance retirement investors’ financial growth by up to 1.2% annually. Although this might not sound substantial in the short term, over a lifetime, it could elevate the value of an account by as much as 20%.
Acting Secretary of Labor Julie Su noted: “For too many workers, the road to lifelong financial security is unnecessarily paved with uncertainty. This rule ensures that savers of all income levels can work confidently with investment professionals to grow their nest egg and prepare for the joyful retirement they deserve.”