How the New Financial Adviser Rule Impacts You

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Conflicts of interest in retirement advice can lower your average returns by 1 percent a year. Find out how a new federal rule aims to end the problem.

Conflicts of interest in retirement advice cost Americans an estimated $17 billion each year. These conflicts lead to an average 1 percent lower annual returns on retirement savings, according to press release from the White House.

That will soon begin to change, however.

The White House announced Wednesday that the U.S. Department of Labor has finalized a new federal regulation, or rule, that governs conflicts of interest in retirement advice by holding certain types of financial advisers to a higher standard.

Most of the rule will become applicable starting in April 2017.

Currently, financial advisers who receive fees or other compensation are legally allowed to steer a client to an investment product that may not result in the highest return for the client, yet offers higher compensation to the adviser.

The new rule is designed to end that type of conflict of interest. As the Department of Labor explains:

At its core, the regulatory package is very simple: It requires more retirement investment advisers to put their clients’ best interest first. It does this by closing existing loopholes and expanding the types of retirement advice subject to fiduciary protections.

The Department of Labor explains that holding people to what is often called a fiduciary standard “means that they are required to give you advice that is in your best interest, not their own.”

To learn more about the new rule, visit the Department of Labor website.

To learn more about how to select a financial adviser, check out “Ask Stacy: How Do I Find a Good Investment Adviser?

What’s your take on the passage of these federal regulations? Sound off in our Forums. It’s the place where you can speak your mind, explore topics in-depth, and post questions and get answers.

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