Biden administration wants to kill ‘junk’ fees in retirement investments and advice

Oct 31, 2023, 12:38 PM

The Biden administration wants to kill ‘junk’ fees in retirement investments and advice.

The Biden administration wants to kill ‘junk’ fees in retirement investments and advice. (Shapecharge/iStockphoto/Getty Images)

(Shapecharge/iStockphoto/Getty Images)

(CNN) — As part of its ongoing effort to make it easier for Americans to amass retirement savings and protect consumers from having to pay “junk” fees, the Biden Administration on Tuesday released a proposed rule that would require any financial adviser, broker or insurance agent who sells retirement investments and advice to only do so in the best interest of their clients, not their own.

“That means that if a retirement investor receives investment advice from a firm or someone and compensates that person for providing that advice, the retirement investor has the right to expect that the person providing the advice is going to act in the investor’s interest, and not in the advice provider’s own interest,” the Department of Labor said in a fact sheet on the rule.

While there are already fiduciary, “best-interest” rules in place from the Employee Retirement Income Security Act, which governs retirement savings plans, and from the Securities and Exchange Commission, which is charged with protecting investors when they purchase and sell securities, they don’t cover all types of investment products that retirement savers may be sold or all types of retirement savings transactions, such as one-time rollovers from a 401(k) to an IRA.

Generally speaking, whether advising an individual on what to do with their retirement savings or offering an employer advice on the investment options to include in a workplace retirement plan, advisers acting in a fiduciary capacity must avoid conflicts of interest. That is, their advice shouldn’t steer a client toward one product or service over another based on how much more they or their firm can make by doing so.

Purpose of the proposed rule

The DOL’s proposed rule seeks to ensure “all retirement investors receive the same quality of investment advice regardless of product or services,” said DOL Acting Secretary Julie Su in a call with reporters.

Among the types of investments that federal fiduciary rules don’t cover are non-securities such as real estate, commodities and some types of annuities, which like an employer pension can offer retirees fixed payments for life or for a period of years, depending on how the product is structured.

Annuities are insurance products and are regulated by state law — so the rules will vary by state. How they work can be complex to understand, and their fees can be high.

One situation the proposed fiduciary rule seeks to eliminate is when a person is sold a high-cost annuity, for which a broker may get a generous commission, that isn’t best suited to the client’s needs. As an example, the White House estimates that absent a fiduciary standard, the sales of just one such product — fixed index annuities — may be costing retirees up to $5 billion a year.

Across all retirement products, “requiring advisers to make recommendations in the savers’ best interest can increase retirement savers’ returns by between 0.2% and 1.20% per year. Over a lifetime, that can add up to 20% more retirement savings—potentially tens or even hundreds of thousands of dollars per impacted middle-class saver that could otherwise have been lost to junk fees,” according to a White House factsheet.

Industry pushback expected

The new proposed rule follows earlier attempts by the Labor Department to broaden and standardize the circumstances in which financial advisers must act in retirement savers’ best interests. But those attempts didn’t withstand judicial challenge.

It is not clear yet whether the changes called for in the latest proposed rule will be sufficient to quell the opposition earlier versions faced. But industry pushback is expected, including from the Insured Retirement Institute, a trade association for the insured retirement industry.

In a pre-buttal to the rule’s release, the IRI, noted that in recent years “regulators at the federal and state levels have adopted and implemented significant and workable new regulations that directly address conflicts of interest that DOL is purportedly seeking to address with this new proposed rule.”

As an example, according to the IRI, 40 states have already enacted a regulation requiring insurance producers to satisfy a best interest standard that aligns with the SEC’s Regulation Best Interest (Reg BI). “And the remaining states are expected to do so in 2024,” IRI said.

In response, a senior DOL official told CNN “that standard is not sufficiently protecting consumers in those [40] states. We believe retirement savers deserve protection no matter which state they live in and this proposal would ensure that they don’t need to understand which set of rules they happen to be operating under — there would instead be a consistent standard for all.”

After the DOL publishes its proposed rule, there will be a 60-day period for public comment, after which possible revisions to the rule may be made before it is finalized. But there is no timeline yet for when that will be, the official said.

KSL 5 TV Live

National News

Montgomery County Sheriff's Department -- Photo of McKay Everett taken by his father Carl the day M...

Ben Kuebrich, KSL Podcasts

‘Ransom: Position of Trust’: The Phone Call

Episode one of the true-crime podcast "Ransom: Position of Trust" explores the day McKay disappeared and the beginnings of the investigation.

6 hours ago

FILE: Marijuana plants are grown at Essence Vegas' 54,000-square-foot marijuana cultivation facilit...

Carla K. Johnson, AP Medical Writer

Daily marijuana use outpaces daily drinking in the US, a new study says

Millions of people in the U.S. report using marijuana daily or nearly every day, and those people now outnumber those who say they are daily or nearly-daily drinkers of alcohol.

8 hours ago

Newly minted Michelin-starred chef Arturo Rivera Martínez prepares an order of tacos at the Tacos ...

Associated Press

The first Mexican taco stand to get a Michelin star is a tiny business where the heat makes the meat

Mexico City’s Tacos El Califa de León is the first taco cart to be awarded a Michelin star.

8 hours ago

The interior of Singapore Airline flight SG321 is pictured after an emergency landing at Bangkok's ...

Jessie Yeung, Manveena Suri and Alex Stambaugh, CNN

‘All hell broke loose’: Passengers on Singapore Airlines flight describe nightmare at 37,000 feet

Passengers on a Singapore Airlines flight hit by severe turbulence described a sudden, dramatic drop.

9 hours ago

A Delta Air Lines plane sits at the A22 gate at Salt Lake City International Airport in Salt Lake C...

Art Raymond

Flights from Utah to Mexico at risk after fed decision to nix Delta-Aeromexico partnership. State leaders push back

Long-running flights agreement facilitated tens of millions of journeys, stronger relationships between Utah and Mexico, advocates say.

12 hours ago

WASHINGTON, DC - MAY 14: U.S. Secretary of Education Miguel Cardona delivers remarks at an event ho...

Collin Binkley, AP Education Writer

Biden administration canceling student loans for another 160,000 borrowers

The Biden administration is canceling student loans for another 160,000 borrowers through a combination of existing programs.

12 hours ago

Sponsored Articles

Electrician repairing ceiling fan with lamps indoors...

Lighting Design

Stay cool this summer with ceiling fans

When used correctly, ceiling fans help circulate cool and warm air. They can also help you save on utilities.

Side view at diverse group of children sitting in row at school classroom and using laptops...

PC Laptops

5 Internet Safety Tips for Kids

Read these tips about internet safety for kids so that your children can use this tool for learning and discovery in positive ways.

Women hold card for scanning key card to access Photocopier Security system concept...

Les Olson

Why Printer Security Should Be Top of Mind for Your Business

Connected printers have vulnerable endpoints that are an easy target for cyber thieves. Protect your business with these tips.

Modern chandelier hanging from a white slanted ceiling with windows in the backgruond...

Lighting Design

Light Up Your Home With These Top Lighting Trends for 2024

Check out the latest lighting design trends for 2024 and tips on how you can incorporate them into your home.

Technician woman fixing hardware of desktop computer. Close up....

PC Laptops

Tips for Hassle-Free Computer Repairs

Experiencing a glitch in your computer can be frustrating, but with these tips you can have your computer repaired without the stress.

Close up of finger on keyboard button with number 11 logo...

PC Laptops

7 Reasons Why You Should Upgrade Your Laptop to Windows 11

Explore the benefits of upgrading to Windows 11 for a smoother, more secure, and feature-packed computing experience.

Biden administration wants to kill ‘junk’ fees in retirement investments and advice