Biden Administration Tightens Fiduciary Rules for Retirement Advisors

The Way Advisers Handle Your Retirement Money Is About to Change

In a significant move to protect investors, changes have been announced to the federal regulations governing retirement plans. This will affect the way financial advisers handle your retirement money, aiming to minimize conflicts of interest and prioritize the investors’ interests. Let’s take a closer look at these changes and how they impact you.

New Rules for Retirement Plans

Under the new rules announced by the Biden administration, from September 23, financial professionals who provide financial advice about your retirement money will be required to act as fiduciaries. Essentially, they can’t put their own interests before yours. This rule applies to advice on individual retirement accounts, 401(k)s, and other tax-advantaged dollars, and is set to be fully effective by September 2025.

Closing Loopholes

The new regulations, issued by the Department of Labor, aim to close loopholes that previously allowed many investment professionals to dodge fiduciary status. This is particularly important for transactions such as when workers shift their savings from a 401(k) plan to an individual retirement account, which weren’t always covered by investor protections.

Why Fiduciary Status Matters

Fiduciary status is vital because fiduciaries must adhere to strict rules of conduct and avoid conflicts of interest under the federal law known as ERISA. This means they can’t provide advice that affects their compensation without taking measures to ensure investors are protected. They must also disclose their roles as fiduciaries in writing.

Finding Fiduciary-Level Professionals

While these new rules are a significant step towards ensuring investor protection, individuals may still wonder how to find fiduciary-level professionals. One way is to hire a “fee-only” independent certified financial planner who is a registered investment adviser. These professionals are required to act as fiduciaries when providing investment advice about securities, and they must eliminate or disclose conflicts.

Choosing an Adviser: Key Questions

When choosing an adviser, important questions to ask include if they are a fiduciary, how they get paid, and if they will get paid more for recommending one investment over another. Also, ask about their investment philosophy and if they are willing to sign a fiduciary pledge. If they refuse, it’s advisable to find another adviser.

Where to Find a Trusted Adviser

Several trade groups, including the XY Planning Network, Garrett Planning Network, and the National Association of Personal Financial Advisors (NAPFA), allow you to search for professionals based on their expertise. More recent entrants like Domain Money and Facet also provide connections to independent financial planners who charge flat fees. Roboadvisers may also be another viable option.

Investor Protection is Paramount

Ultimately, the most valuable service an adviser can provide is to save us from ourselves during the darkest market moments, preventing emotional selling or buying at the worst possible time. These new rules are a significant step towards ensuring that protection is in place, with your adviser acting in your best interests as a fiduciary.