The Department of Labor is getting ready to release new rules on how your retirement adviser gets paid.
These rules have been in development for a long time, and have to do with something called the “fiduciary duty” — whether you adviser is required to give you advice that’s the best for you instead of tips that are generally suitable for you. That may not sound like a big difference, but the Department of Labor says it’s costing consumers $17 billion each year.
Micah Hauptman of the Consumer Federation of America says the current system creates a conflict of interest. For example, advisers can be paid higher commissions for investing you in an annuity versus a mutual fund, which he said gives them an incentive to push people into financial products that may not be best for them. Hauptman said the rule changes will help alleviate that problem.
“Investors will be able to go to any financial adviser who is offering retirement investment advice and receive advice that they can trust,” he said, “and not receive a sales pitch that’s disguised as advice.”
Vanessa Scott is a partner at the law firm Sutherland Asbill & Brennan, and works with the financial services industry. She said the rule goes too far in response to bad behavior by a few advisers.
“As an industry, [we] want to make sure that those bad actors are being targeted,” she said. “But to overhaul the entire investment advice industry and to change the compensation structure for the entire investment advice industry instead of targeting exactly what those bad apples are doing …we just don’t think that is the best approach.”
She pointed out that many fee-only advisers require high minimum investments, which could leave out smaller investors. But others expect the rules will drive down costs and spur innovation.
Correction: This story has been updated to more accurately reflect a comment attributed to Micah Haptman.