WASHINGTON, D.C. (April 6, 2016) – The U.S. Department of Labor today is releasing new rules to update and strengthen the safeguards for consumers who are saving for retirement.
Consumers Union, the advocacy arm of Consumer Reports, said the new rules aim to put more rigorous standards in place for brokers and other financial professionals who provide retirement investment advice. Under the new rules, these advisers will be held to higher standards that require them to put their clients’ best interest ahead of their own financial gains.
Pamela Banks, senior policy counsel of Consumers Union, said, “This is an important step that could help protect the retirement security of millions of Americans. The old rules were outdated, and these changes are long overdue. When you’re planning for your retirement, your adviser should be focused first on what makes sense for your finances, not theirs. Too often, some financial advisers may steer you towards investments with high fees and lower returns that benefit their bottom line, while leaving you paying a heavy price.”
Banks added, “As we review the details of these final rules, we are optimistic that they will help remove conflicts of interest that can jeopardize a happy, financially-healthy retirement.”
Consumers Union has long advocated for reforms to modernize the rules for retirement advisers. The Labor Department first proposed a change to the rules in 2010 and formally proposed new rules for consideration in 2015. Consumers Union filed comments in support of the changes and met with officials at the Department, the White House and Congress to push for the strongest possible standards and urge them to resist industry pressure to weaken the rules.
Retirement savers could hold on to tens of thousands of dollars more over their lifetimes thanks to this new “fiduciary rule.” Some may assume all financial advisers act in their clients’ best interests, but that hasn’t necessarily always been the case. While consumers have long been able to turn to fee-only advisers (also known as fiduciaries) who acted in their best interest, they also had the option of using commission-based advisers, such as stock brokers, who were only required to adhere to what is known as a “suitability standard.” That meant they could provide their clients with investment options that were considered suitable for their needs, but might come with high fees that benefited the advisers.
Under the new rules, which fully go into effect by January 2018, all financial advisers, whether fee-only or commission-based, will have to adhere to the same standards. They are required to make customers aware of their right to complete information on the fees charged and direct them to a web page or written material disclosing compensation arrangements. Advisers will be required to charge only a “reasonable” compensation, and they must avoid misleading statements about fees and disclose any conflicts of interest.
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Consumers Union is the public policy and advocacy division of Consumer Reports. Consumers Union works for health reform, food and product safety, financial reform, and other consumer issues in Washington, D.C., the states, and in the marketplace. Consumer Reports is the world’s largest independent product-testing organization. Using its more than 50 labs, auto test center, and survey research center, the nonprofit rates thousands of products and services annually. Founded in 1936, Consumer Reports has over 8 million subscribers to its magazine, website, and other publications.