How a New Rule Could Change the Way Advisers Handle Your Retirement Money.

You may remember we posted an article titled “The Crucial Role of Fiduciary Investment Advisors in Safeguarding Your Financial Future” on February 15th. Since then, the Labor Department’s latest push for a new fiduciary rule to protect investors’ retirement savings is heating up.

According to a recent article published in The New York Times titled “How a New Rule Could Change the Way Advisers Handle Your Retirement Money,” the issue has re-emerged. The Labor Department is preparing to release a final rule that “would require financial professionals to be held to the highest standard, across the investment landscape, when providing advice on retirement money held or destined for tax-advantaged accounts, like individual retirement accounts.”

As the article pointed out, “that type of care comes in degrees, and deciding exactly how far advisers should go has been the center of heated debate for nearly 15 years, pitting financial industry stakeholders, who argue their existing regulatory framework is enough, against the U.S. Labor Department, the retirement plan regulator, which says there are gaping holes.

Most retirement plan administrators who oversee the trillions of dollars held in 401(k) plans are already held to this standard, part of a 1974 law known as ERISA, which was established to oversee private pension plans before 401(k)s existed. But it doesn’t generally apply, for example, when workers roll over their pile of money into an I.R.A. when they leave a job or retire from the work force. Nearly 5.7 million people rolled $620 billion into I.R.A.s in 2020, according to the latest Internal Revenue Service data.”

“It shouldn’t matter whether you’re getting advice on an annuity, any kind of annuity, a security — if it’s advice about your retirement, that should have a high standard that applies across the board,” said Ali Khawar, the Labor Department’s principal deputy assistant secretary of the Employee Benefits Security Administration.

Though investor protections have improved in recent years, there isn’t a universal standard for all advisers, investment products and accounts.

The piece points out that “The varying “best interest” standards can be dizzying: Registered investment advisers are fiduciaries under the 1940 law that regulates them, but even their duty isn’t viewed as quite as stringent as an ERISA fiduciary. Professionals at brokerage firms may be registered investment advisers, to whom the 1940 fiduciary standard applies — or registered representatives, to whom it does not. In that case, they’re generally held to the Securities and Exchange Commission’s best interest standard. Confused? There’s more.

Annuity sellers are largely regulated by the state insurance commissioners, but legal experts say their best interest code of conduct, adopted in 45 states, is a weaker version than the one for investment brokers. Variable annuity and other products, however, fall within the domains of both the S.E.C. and the states.

Stakeholders in the financial services and annuities industries say the current standards that apply are enough. This includes Regulation Best Interest, enacted by the S.E.C. in 2019, which requires brokers to act in their customers’ best interests when making securities recommendations to retail customers. They argue that the more stringent ERISA standard would cause customers to lose access to advice (though comprehensive lower-cost advice from fiduciaries has become more accessible in recent years).

The S.E.C.’s adoption of Regulation Best Interest “requires all financial professionals subject to the S.E.C.’s jurisdiction to put their clients’ interest first — to not make recommendations that line their own pockets at the expense of their client,” said Jason Berkowitz, chief legal and regulatory affairs officer at the Insured Retirement Institute, an industry group, during a House hearing about the rule in January.

“It would be unreasonable to expect ordinary retirement investors to understand the implications of these disclosures,” said Micah Hauptman, director of the Consumer Federation of America, a nonprofit consumer association.

Under the latest proposal, fiduciaries must avoid conflicts of interest. That means they can’t provide advice that affects their compensation, unless they meet certain conditions to ensure investors are protected — that includes putting policies in place to mitigate those conflicts. Disclosing conflicts alone isn’t enough, department officials said.

“Our statute is very anti-conflict in its DNA,” Mr. Khawar of the Labor Department said. “There are ways that we’re going to expect you to behave to ensure that the conflict doesn’t drive the decision that you make.”

Arthur B. Laby, vice dean and professor at Rutgers Law School, said “A relationship of trust, vulnerability and reliance calls for the protections afforded by a fiduciary duty.”

In conclusion, having a fiduciary as your investment advisor cannot be overstated. The fiduciary standard is a beacon of trust, integrity, and unwavering loyalty to client interests in a landscape fraught with complexities and potential pitfalls. Working with Duncan Williams Asset Management’s financial advisors, you can be confident that we take our fiduciary responsibilities seriously.

Source: https://www.nytimes.com/2024/03/26/business/fiduciary-rule-retirement.html

Duncan Williams Asset Management is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Duncan Williams Asset Management by the SEC nor does it indicate that Duncan Williams Asset Management  has attained a particular level of skill or ability. This material prepared by Duncan Williams Asset Management  is for informational purposes only and is accurate as of the date it was prepared.  It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Advisory services are only offered to clients or prospective clients where Duncan Williams Asset Management  and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Duncan Williams Asset Management unless a client service agreement is in place.  This material is not intended to serve as personalized tax, legal and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Duncan Williams Asset Management  is not a legal or accounting firm. Please consult with your legal or tax professional regarding your specific tax situation when determining if any of the mentioned strategies are right for you.

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