New Rule Aims to Help People Fight Bad Investment Advice

The US Labor Department has finally issued a new rule that requires brokers, financial advisors, and insurance agents to provide their clients with advice that follows their best interests. This new rule was proposed in October by the Biden administration. The main idea is to crack down on malpractice on the part of financial advisors. Specifically, the rule targets the following scenarios: Any recommendations that advisors make to roll over money from 401(k) plans to IRAs; If a professional recommends that their client buy “non-securities” products like indexed annuities; and, in the general sense, it would require that specialists recommending specific investments to 401(k) participants have their client’s best interests in mind.

This new rule hopes to avoid bad advice from financial advisors who are just getting their clients to put their savings where these advisors can earn a higher commission rate. The proponents of this new rule mention that legally, there’s no obligation for financial advisors to act in the best interest of their clients. That’s why many of them ultimately pushed to have money transferred to products or funds, especially indexed annuities, which give financial advisors better commission rates.

This rule is the second attempt by a democratic government to regulate interactions between financial advisors and their clients. The Obama administration tried to push for regulation in these conflict-of-interest cases. Experts mention that the Obama proposal was much broader than what the Biden camp passed this Tuesday. At the time, Obama’s effort was killed in court.

Starting on September 23rd, members of the financial industry who advise clients must acknowledge fiduciary status. This means that they’ll now have a legal and moral obligation to their clients. Breaching fiduciary status can result in a loss of license and even criminal charges. These penalties will hopefully deter financial advisors from the different forms of malpractice that have unfortunately been present in the industry.

The rule will extend financial advisors’ responsibilities by September 2025. Julie Su, acting secretary of the Labor Department, was very clear on the Biden Administration’s goal in pushing for these changes. In a recent call with members of the media, she mentioned, “It’s time to get junk fees out of the retirement savings market.”

In this context, junk fees are essentially the money that an investor loses because of the bad advice they get from a professional, particularly when that professional is aware that they’re giving their clients bad advice. However, they are making those suggestions because they are getting paid different bonuses to have their clients invest in the aforementioned indexed annuities.

The Council of Economic Advisers estimates Americans lose up to $5 billion a year when they transfer their funds from their 401(k) to these indexed annuities products. Yet the number of Americans who are taking that bet is increasing year over year. Proponents of the rule claim the numbers aren’t adding up, while defenders of the practice mention that some of these new regulations may limit what people can actually do with their retirement funds.

Mario Perez

Author: Mario Perez


Mario is a seasoned journalist who’s worked with multiple publications over the years. He has a passion for looking for that story within the story itself. When he’s not actively looking for breaking news, he enjoys playing and watching sports.

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