As part of its efforts to protect U.S. consumers, the U.S. Department of Labor announced Tuesday that it has proposed updating the definition of an investment advice fiduciary under the Employee Retirement Income Security Act.
The proposed rule is part of its Employee Benefits Security Administration retirement security rule and would require trusted investment advisers to adhere to high standards of care and loyalty when making investment recommendations. The rule would require they avoid recommendations that favor their financial and other interests at the expense of those saving for retirement.
“For too many workers, the road to lifelong financial security is unnecessarily paved with uncertainty,” Acting Secretary of Labor Julie Su said. “This rule ensures that savers of all income levels can work confidently with investment professionals to grow their nest egg and prepare for the joyful retirement they deserve. America’s workers and their families should not have excess fees and lost investment returns chipping away at their retirement savings due to the cost of conflicted investment advice.”
The updated definition would apply to financial services providers giving investment advice, for a fee, to retirement plan participants, individual retirement account owners and others. The department said that while investment professionals deserve to be paid for their advice, there are some who put their own interests before their clients’ interests, which can result in reduced returns and higher costs.
According to the DOL, an analysis of fixed index annuities suggests that conflicted advice could cost consumer savers up to $5 billion per year. The department said the proposed rule would also ensure that investment professionals can compete for business on a level playing field, instead of one that holds advisers to different standards based on their recommendations.
The DOL is also proposing amendments to existing administrative prohibited transaction exemptions, to make those exemption conditions more uniform and protective.
The proposed update and amendments will be posted to the website and published in the Federal Register for public comment over the next 60 days.