New rules proposed for retirement advisers

  • The Washington Post
  • Wednesday, April 15, 2015 3:25pm
  • Business

WASHINGTON — Regulators on Tuesday proposed new rules that would raise the standards for investment advice given to those saving for retirement.

The proposal, which was backed by President Barack Obama in February, would require brokers who recommend investments for retirement accounts to put their client’s interests ahead of their own, holding them to what are known as “fiduciary standards.”

The move is intended to cut back on hidden fees and conflicted advice that could be eating into retirement savings. The White House estimated this year that conflicts of interest and weak consumer protections cost those investing in individual retirement accounts up to $17 billion a year in excessive fees.

Under current rules, brokers can recommend an investment or product as long as it is “suitable” for the client. But critics say such a standard allows brokers to offer strategies that are sometimes too complicated or too expensive for mom-and-pop investors who may be unaware that the broker is getting paid for steering them to that investment.

“Most people aren’t even aware of these hidden fees and backdoor payments to advisers,” Jeffrey Zients, director of the White House National Economic Council, said Tuesday.

The changes would update the Employee Retirement Income Security Act, commonly known as ERISA, That law was enacted in 1975, when more companies offered pensions and fewer workers were tasked with managing investments in their retirement portfolios.

Many financial advisers are already following some of these guidelines, but the new rules would make more brokers subject to fiduciary standards. They would apply when advisers are consulting savers on what investments to buy or sell and when they are helping people decide whether to roll over retirement savings from a 401(k) plan or other retirement account into an IRA.

The rules are expected to face resistance from investment firms, which argue that the changes could make it more difficult for them to take on investors with small account balances. Opponents of the new efforts say retirement accounts and brokers are already subject to strong regulations intended to protect consumers.

“Main Street investors are also protected when they have access to affordable advice to help them plan for a dignified retirement,” said Dale Brown, president of the Financial Services Institute, which advocates for financial advisers.

Still, the proposal is expected to be more flexible than some previous attempts to update the standards. The new rules, for instance, would not get rid of commissions. They would also offer certain exemptions for brokers and would not apply to those who take orders from investors but do not provide advice.

The announcement comes after the proposed rules were reviewed by the Office of Management and Budget, a process that began in February. The Labor Department will now take public comment on the proposal for 75 days.

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