The White House says new rules for financial advisers could save working- and middle-class families up to $17 billion a year.
Financial advisers should put the interests of their clients’ retirement accounts first. President Obama said some Wall Street brokers and financial advisers aren’t doing that, and it’s costing working class families up to $17 billion a year in potential retirement savings.
The president is proposing new rules aimed at protecting Americans and their retirement savings from financial advisers’ bad and conflicting investment advice. Obama is pressing the Department of Labor to raise the standards for retirement advisers.
“In proposing the rules, Obama said he sought to protect Americans from being steered into costly retirement investments that produced high commissions for brokers but low returns for investors preparing for retirement,” Reuters said.
The proposed new standards would require brokers and financial advisers to justify why they are advocating for a security that is either underperforming or costs more than others. Right now, the SEC requires advisers to choose investments that are “suitable,” The Washington Post said, but the regulatory body does not lay out requirements with respect to cost and performance of the investments.
According to a White House press release, Americans should be able to trust that financial advisers are acting in their best interest, but right now, there’s no guarantee that they will, and some factors at work that suggest they won’t.
Selecting and managing IRA investments can be a challenging and time-consuming task, frequently one of the most complex financial decisions in a person’s life, and many Americans turn to professional advisers for assistance. However, financial advisers are often compensated through fees and commissions that depend on their clients’ actions. Such fee structures generate acute conflicts of interest: the best recommendation for the saver may not be the best recommendation for the adviser’s bottom line.
More stringent rules are targeting the management of Individual Retirement Accounts (IRAs) and 401(k) accounts, which hold more than 40 million Americans’ retirement savings, totaling more than $7 trillion.
According to Reuters, Obama’s proposal is opposed by Republicans, financial firms and even some Democrats “who fear the plan will limit retirement products available to investors and curb brokers’ compensation.”
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Advisers who make poor choices with our retirement money are one problem. But the reality is we may be making plenty of other poor choices on our own. Watch this video for tips on how to make sure your retirement destination is the one you intend: