The Biden administration finalized a rule cracking down on retirement advice last month, which a Democrat and a Republican are already seeking to repeal.
Here’s what you need to know about the Retirement Security Rule:
How does the rule work?
The rule, which the Labor Department finalized last month, requires investment advisers to provide “prudent, sincere and honest advice free of excess fees” and avoid recommendations that favor their interests at the expense of their clients.
It also updates the definition of a fiduciary for investment advice under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code.
Under the new definition, a fiduciary includes any financial services provider who provides investment advice to a retired investor for a fee and claims to be acting as a fiduciary or is understood by a reasonable investor to be a trusted advisor acting on his or her behalf.
The update removes the requirement for agents to provide advice on a regular basis, providing one-time advice under the rule.
The Biden administration said the previous definition, written in 1975, was outdated and had not kept pace with changes in the retirement landscape.
“These new rules modernize regulations that were in place nearly half a century ago and that simply do not provide the protections American workers need and deserve for their retirement savings so they can retire with dignity,” said Lisa Gomez, Assistant Secretary for Employee Benefits Security. Statement when the rule was finalized last month.
A key part of Biden’s agenda is “junk tariffs.”
This rule comes as part of the Biden administration’s larger efforts to eliminate so-called “junk fees.”
“Retirement funds are often people’s largest savings,” Acting Labor Secretary Julie Su said at an event unveiling the proposed retirement rule last October.
“They deserve to know that their financial advisors are giving them trustworthy advice and that the investment savings they have worked hard to build, little by little, paycheck by paycheck, year after year, will not be eroded by unwanted fees.”
The White House Council of Economic Advisers (CEA) has cited potential losses to investors who are encouraged to convert their retirement savings into fixed index annuities.
Fixed index annuities, which are based on a particular market index, cap losses and cap returns for investors.
These annuities may offer brokers commissions for their sales, which the CEA suggested could create “strong incentives for brokers to encourage investment in fixed index annuities even if they are not in the best interests of investors.”
The CEA estimates that up to $5 billion is lost annually due to “conflicting investment advice” on fixed index annuities.
“Millions of Americans, especially seniors, are being targeted by financial advisors and insurance brokers who sell bad annuities that work for the broker’s benefit and not the client’s,” President Biden said in October.
The Biden administration has sought to limit “junk fees” in several industries, including banking and air travel.
In March, the Consumer Financial Protection Bureau (CFPB) issued a rule capping late fees on credit card payments at $8. Last month, the Department of Transportation finalized rules that require airlines to automatically refund travelers for canceled or significantly delayed flights and split the additional fees up front.
Both attempts have been challenged in court, with a federal judge in Texas blocking the credit card late fee rule last week.
Why do liberals and industry critics support it?
Liberals and industry critics argue that the new rule fills existing loopholes in the retirement counseling industry.
Before the rule was finalized last month, the senator said. Elizabeth Warren (D-Mass.) accused major insurance companies of “paying wages” to retirement advisers with car rentals and lavish vacations.
“All these advisors have to do is intentionally give you bad advice, bad advice that puts money in the pockets of these big companies,” Warren said in an Instagram video. “And it’s all perfectly legal.”
AARP, formerly known as AARP, has promoted the final rule to close such “legal loopholes.”
“This rule closes legal loopholes that have allowed some advisors to recommend investments with excessive fees and unnecessary risks, which collectively cost retirement savers billions of dollars annually, particularly affecting older Americans,” said Nancy LeMond, AARP’s executive vice president and chief advocacy officer. Participation, he said in a statement.
Why Manchin, Republicans and industry are opposed He. She
Earlier this week, Sen. Joe Manchin (D-W.Va.) and 15 Republican senators introduced a resolution to repeal the retirement rule, arguing that it would cause people to “lose access to investment advice because of how broadly the rule defines a fiduciary.”
“This Department of Labor rule is another example of dangerous federal overreach,” Manchin said in a statement. “While I understand the administration’s intent to protect Americans’ retirement savings, the fact of the matter is that this does exactly the opposite,” he added.
Several industry groups have also joined – including the American Council of Life Insurers (ACLI), the National Association of Insurers and Financial Advisors (NAIFA), Finseca, the Insured Retirement Institute (IRI), and the National Association of Fixed Annuities (NAFA). Go against Al Qaeda.
They argue that it “leaves retired savers with fiduciary advisors as their only option for professional financial guidance,” noting that fiduciaries typically work with clients who have at least $100,000 to invest.
“The Department has chosen to proceed with this credit-only approach despite strong evidence of its negative impact on retirement savers,” NAIFA CEO Kevin Mayo said in a statement.
Industry groups also claim that the new rule is “nothing more than a restatement” of previous regulations that were struck down in court.
The final chapter in a decade-long battle
The Biden administration’s ruling represents the latest attempt to enact the fiduciary rule after more than a decade of partisan battles.
The saga stems from the Dodd-Frank Act of 2010, which ordered the Securities and Exchange Commission (SEC) to write regulations for broker-dealers and investment advisers.
However, while the commission was dragging its feet, the Department of Labor stepped in and proposed its own rules in 2016.
As with the last rule, Obama-era regulations imposed a “fiduciary duty” on retirement investment advisers, requiring them to put their clients’ interests before their own.
Several major industry groups have sued the Obama administration, arguing that regulation should have come from the Securities and Exchange Commission. Ultimately, a federal appeals court overturned this rule in 2018.
In 2019, the Republican-controlled Securities and Exchange Commission approved several measures aimed at strengthening and clarifying rules regarding broker-dealers and investment advisers while reducing conflicts of interest.
However, the move was criticized by Democrats and consumer advocacy groups, who dismissed the regulations as too weak.
Copyright 2024 Nexstar Media Inc. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
“Explorer. Unapologetic entrepreneur. Alcohol fanatic. Certified writer. Wannabe tv evangelist. Twitter fanatic. Student. Web scholar. Travel buff.”
