[1/3]The United States Department of Labor is seen in Washington, D.C., U.S., August 30, 2020. REUTERS/Andrew Kelly/File Photo Acquire Licensing Rights
Oct 31 (Reuters) – The Biden administration on Tuesday will seek to impose new rules on retirement plan providers to close loopholes that officials argue allow the industry to sell products that boost their revenue at the expense of customers, the latest effort by the administration to crack down on so-called junk fees.
The proposed Labor Department rules require retirement plan providers to only sell commodities and insurance products, such as annuities, to clients when doing so is in the customer’s best interest.
They would also hold Wall Street to a higher standard for the advice they provide when people roll over assets from an employer plan to another account, such as employee-sponsored 401(k) to an Individual Retirement Account.
“Financial advisors should put savers best interest first, and not sell them lower returning products in order to maximize their own fees,” Lael Brainard, director of the White House National Economic Council, said.
“When a retirement saver pays for trusted advice that is actually not in their best interest and comes at a hidden cost to their lifetime savings, that’s a junk fee,” Brainard said.
President Joe Biden has joined with companies such as Airbnb (ABNB.O) and Live Nation (LYV.N) to crack down on junk fees – or extra charges – customers pay when booking concert tickets, hotels and air fares. Taking on “junk fees” gives Biden and his allies fodder to show they are helping people tackle costs as many Americans are dissatisfied with his economic stewardship.
The proposed Labor Department rule is designed to force brokerage firms to put investors’ needs first, instead of selling products that generate a higher payout for them.
Securities and Exchange Commission rules require advice to purchase securities like mutual funds be in the saver’s best interest, but that authority does not extend to commodities or insurance products like fixed index annuities, which are often recommended to retirement savers.
The proposed rule would ensure that retirement advisers must provide advice in the saver’s best interest, regardless of whether they are recommending a security or insurance product and where they are giving advice, senior administration officials said.
The federal law governing retirement plans doesn’t always require retirement advisers, who are providing advice on a one-time basis, such when rolling over assets from a 401(k) plan into an Individual Retirement Account (IRA) or annuity, to look out strictly for the saver’s interest.
In 2022 alone, Americans rolled over approximately $779 billion from defined contribution plans, such as 401(k)s, into IRAs. The proposed rule will close this loophole to ensure this advice is in the saver’s best interest
Reporting By Jarrett Renshaw; Editing by Michael Perry
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