The “Retirement Security Rule,” an updated version of the Fiduciary Rule announced by the Department of Labor (DOL), will go into effect starting September 23, 2024. The rule represents crucial changes to retirement savings policies.
First introduced under Obama’s administration, the rule was never fully implemented. Under Biden’s administration, this refurbished rule aims to enhance investment advice for retirement plans substantially.
The revised rule changes who qualifies as an investment advice fiduciary. The DOL’s focus is mainly on retirement plans, while the Securities and Exchange Commission (SEC) has a broader reach, overseeing not just retirement accounts but also other types of investments.
The Biden administration’s goal with this rule is establishing a more equal and fair investment advice regulation. However, the industry is debating whether this could lead to additional burdens for financial advisors.
The potential effects of these modifications on investment advisory services are yet to be seen.
Enhancements to investment advice under new rule
However, optimism exists for greater transparency, improved investment advice, and consumer protection.
Steven Herbert Akin, an investment advisor, views the new rule as a step up from the SEC’s Regulation Best Interest, enacted in 2019. Akin believes the updated regulation will offer clearer guidelines for investment practices, which he feels will build understanding and trust among public investors.
The updated rule chiefly focuses on advice given to employees considering moving their 401(k) retirement savings into Individual Retirement Accounts (IRAs), annuities, or other investment options. It aims to prevent misleading advice that might lead to ill-informed financial decisions.
Jerry Schlichter, founder of Schlichter Bogard, is a strong supporter of the rule, as he believes it will protect retirement investors by classifying anyone who advises them as a fiduciary.
A key aspect of the rule specifies that advisors must align their advice with the needs of the individual, primarily benefiting this person and explicitly clarifying their fiduciary role. This aims to discourage conflicts of interest and ensures advice is provided to improve retirement benefits.
Richard Bavetz, an advisor at Carington Financial, mentions that this rule expansion will result in a larger group of advisors being classified as fiduciaries. This means they must prioritize their client’s best interest, thus combating potential bias caused by conflicting interests.
