How stricter rules for brokers will affect retirement savers
April 6, 2016 by Associated Press
WASHINGTON (AP) — High fees. Conflicts of interest. Inappropriate investments.
The Obama administration is going after a host of perceived rip-offs with the new rules it’s unveiling Wednesday for brokers who recommend investments for retirement savers.
No longer will brokers who sell stocks, bonds, annuities and other products be required just to recommend investments that are “suitable” for a client. They’ll now have to meet a stricter standard that has long applied to registered advisers: They will be considered “fiduciaries” — trustees who must put their clients’ best interests above all.
The new rules, to be phased in starting a year from now, follow intense lobbying by both consumer advocates and the financial industry. Full compliance will be required by January 2018.
At stake are about $4.5 trillion in 401(k) retirement accounts, plus $2 trillion in other defined-contribution plans such as federal employees’ plans and $7.3 trillion in IRAs, according to theInvestment Company Institute.
Too often, regulators say, brokers steer clients toward questionable investments for which the broker receives a fee, thereby acting in their own financial interest instead of the client’s.
The problems often arise when people who are retiring “roll over” their employer-based 401(k) assets into individual retirement accounts. Brokers may persuade them to put those assets into variable annuities, real estate investment trusts or other investments that can be risky or otherwise not in the client’s best interest.
The administration has said investors will save about $4 billion annually under the new rules. The industry has countered that investment firms will have to shell out more than that just to comply with the rules. Financial firms also argue that the stricter rules will likely shrink Americans’ investment options and could cause brokers to abandon retirement savers with smaller accounts.
Americans increasingly seek guidance in navigating their options for retirement savings. Many professionals provide advice. But not all are required to disclose potential conflicts of interest.
“This is a huge win for the middle class,” Labor Secretary Thomas Perez said Tuesday in a conference call with reporters. “We are putting in place a fundamental principle of consumer protection.”
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Video animation explaining the rules: https://youtu.be/YPH1J1DmHvE
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