President Biden has announced a new rule called the Retirement Security Rule, which aims to extend fiduciary standards and close loopholes in order to protect people saving for retirement from conflicted advice. This rule will ensure that financial advisers make recommendations in the saver's best interest, ultimately leading to increased returns and a more secure retirement.

Importance of Fees in Retirement Planning

Fees play a significant role in retirement planning. Even a small increase in fees can have a substantial impact on one's final assets. In fact, an additional 100 basis points over a 40-year period can reduce final assets by about one-fifth.

Addressing Conflicted Advice

Previously, the issue of conflicted advice may have been overlooked, but now it is at the forefront of discussions. The Department of Labor (DOL) has regulations in place for advice given to employer-sponsored plans, governed by the fiduciary rule of ERISA. This rule mandates that recommendations must be made in the best interest of the client. While the DOL has made efforts to ensure savers receive advice from fiduciaries, these attempts have not always been successful. Additionally, IRS regulations require fiduciaries to avoid "self-dealing" when it comes to IRA rollovers.

Regulation and Oversight

New Measures Introduced

Despite previous progress, the Biden administration has identified significant loopholes in existing regulations. To address this, the new DOL rule proposes three key measures:

1. Broadening the Range of Products: The rule expands the scope of products covered by the "saver's best interest" requirement to include commodities and insurance products such as annuities. Currently, these products are not subject to the SEC's Regulation BI.

2. Covering IRA Rollovers: The rule encompasses all advice related to rolling over assets from employer-sponsored plans to IRAs. Currently, under ERISA, advice given on a one-time basis, such as rollovers, is not required to be in the saver's best interest.

These proposed measures aim to enhance the protection and financial well-being of retirement savers by holding advisers accountable and ensuring that their recommendations align with the best interests of their clients. By closing loopholes and expanding oversight, the Retirement Security Rule seeks to create a more transparent and secure landscape for individuals saving for retirement.

The Importance of Extending Protections on Rollovers

The SEC's Reg BI currently does not cover recommendations to plan sponsors, including small employers. As a professional copywriter and expert in the field, I believe that one of the most crucial proposed changes is extending protections on rollovers from 401(k)s to IRAs.

Over the years, 401(k) plans have become a prominent means of retirement savings. However, they often end up serving as a collection mechanism, with participants eventually rolling over the majority of their funds into IRAs. Interestingly, there is a significant difference in the asset value between IRAs and 401(k)s. Currently, IRA assets exceed those in 401(k)s by 50%, with $12 trillion compared to $8 trillion.

Considering that participants in 401(k) plans tend to be passive in their interactions, rarely adjusting their contribution rates or rebalancing their portfolios, it is remarkable that they choose to move their funds. This suggests a strong motivating force. While some may be swayed by the broader range of investment options or the opportunity to consolidate their holdings, others may be enticed by advertisements from financial service firms encouraging them to transfer their funds from their "old" and "tired" 401(k) plans into new IRAs.

While participants may assume that these advertisements are acting in their best interest, the reality is often quite different. Moving funds from a fiduciary-protected and low-fee environment into an unprotected arena can result in higher fees and investments in high-fee mutual funds. Therefore, it is of utmost importance to ensure that advisers are acting in the best interest of savers when considering a rollover.

Read: Biden wants to end junk fees in retirement planning. Here’s what critics of his fiduciary rule are saying.

By extending protections on rollovers, we can empower participants to make informed decisions about their retirement savings. It is crucial to prioritize the best interests of savers and provide them with the necessary safeguards when considering such financial transitions.