What to Know About the New Retirement Security Rule
The Department of Labor (DOL) recently announced a new Retirement Security Rule that will take effect on September 23, 2024.
The rule aims to “safeguard the millions of American workers saving for retirement diligently and relying on advice from fiduciaries on how to invest their hard-earned money.”
How does the rule affect investment advice?
The DOL outlines that when investment advice providers act in a fiduciary role, they must follow strict rules of conduct. Generally, fiduciary advice providers must:
- Give advice that is prudent and loyal.
- Avoid misleading statements about conflicts of interest, fees, and investments.
- Follow policies and procedures to ensure the advice is in an investor’s best interest.
- Charge no more than is reasonable for their services.
- Carefully manage their conflicts of interest and give investors basic information about them.
Trusted investment counselors must adhere to ethical guidelines when advising individuals on retirement investments. These fiduciaries uphold stringent standards of care and loyalty when offering investment recommendations, avoiding any suggestions that prioritize their interests over those of the retirement savers, financially or otherwise.
With the implementation of the final rule and amended exemptions, financial institutions supervising investment advice providers must establish comprehensive policies and procedures to effectively manage conflicts of interest and ensure that providers adhere to these guidelines.
Mixed Reactions to the Rule
The new rule has sparked mixed reactions across the financial industry.
Proponents believe it’s a necessary step to protect consumers and ensure ethical practices.
Critics argue that the regulation could inadvertently harm retirement savers and restrict access to valuable financial advice. Some organizations have even taken legal action; the Federation of Americans for Consumer Choice (FACC), along with several independent insurance agents, has filed a lawsuit against the DOL.
Concerns from the Financial Industry
Many within the financial advisory community believe that this new rule leads to “dangerous” federal overreach and restricts financial management choices.
Its complicated nature leaves retail investors with fewer options and less peace of mind.
Among the critics are organizations such as the National Association of Insurance and Financial Advisors (NAIFA), the National Association for Fixed Annuities (NAFA), the Insured Retirement Institute (IRI), and the American Council of Life Insurers (ACLI), who have voiced concerns.
Susan Neely, president and CEO of ACLI, criticized the rule, stating it shares the same flaws and dangers for retirement savers as the 2016 rule, which a federal court vacated.
According to Neely, the Department failed to learn from its previous mistakes. The ACLI argues that the rule removes crucial sales information and recommendations that low- and middle-income savers rely on for annuities that provide guaranteed lifetime income.
What Happened to the DOL’s 2016 Fiduciary Rule?
The DOL fiduciary rule, introduced in 2016 by the Obama administration, sought to impose fiduciary duties on financial advisors providing retirement advice. However, the rule faced legal challenges and was ultimately vacated by a federal appeals court in 2018.
The Trump Administration’s effort to revise the rule ended after Biden took office.
The Retirement Security Rule represents a renewed effort to address the shortcomings of the previous rule and enhance investor protections.
“At David Lerner Associates, we have always had the best interests of our clients at the top of our minds,” says Michael Norton, Senior Vice President, Investments at David Lerner Associates, Inc. “ “With sit with our clients, in person in their homes or our offices, to get to know them and their financial goals.”
While the new rule aims to protect retirement savers, it’s essential to consider its broader implications on access to financial advice must be considered. Protecting vulnerable retirement savers is crucial, but the industry must also ensure that regulations do not inadvertently limit the types of financial professionals available to help them.
Interested in learning more about how the new Retirement Security Rule might affect your retirement planning? Contact David Lerner Associates today for insights and guidance tailored to your financial needs.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.