UNITED STATES: President Biden has announced a new proposal to protect retirement security by cracking down on junk fees in retirement investment advice. The proposed rule, which builds on the Biden-Harris Administration’s work to eliminate junk fees and promote competition, would require financial advisers to provide retirement advice in the best interest of the saver, rather than chasing the highest payday.
Currently, when a financial adviser provides retirement advice, they may be paid by the saver or by the firm that makes the investment product they recommend. However, when a firm pays a retirement adviser more to recommend a specific investment product, that creates a conflict of interest that often leads to Americans selecting an investment product recommended to them that generates lower returns. These conflicts of interest can result in advisers receiving a commission as high as 6.5 percent to recommend some insurance products, which can cost savers as much as $5 billion per year.
The proposed rule would close loopholes and require that financial advisers provide retirement advice in the best interest of the saver, regardless of whether they are recommending a security or insurance product and where they are giving advice. It would cover advice to purchase any investment product, roll assets out of an employer-sponsored plan, and plan sponsors about which investments to make available as options in 401(k)s and other employer-sponsored plans.
Requiring advisers to make recommendations in the savers’ best interest can increase retirement savers’ returns by between 0.2% and 1.20% per year, potentially adding up to 20% more retirement savings over a lifetime. This step would minimize junk fees in retirement products, promote competition, and protect American workers’ retirements.
The proposed rule builds on the Biden-Harris Administration’s efforts to eliminate junk fees, putting cash back in the pockets of Americans. It also builds on important actions the Administration has taken to protect the retirement of hardworking Americans, including the SECURE 2.0 law and the Butch-Lewis Emergency Pension Plan Relief Act.
s and other employer-sponsored plans.){kind=link}