Proposed rule aims to protect retirement savers from unscrupulous advisers
Tuesday, November 7, 2023
The Biden administration has proposed a rule to help people save more in retirement and avoid "junk" fees from unscrupulous financial advisers.
According to the White House, a financial adviser may receive a commission as high as 6.5% to recommend some insurance products, posing a conflict of interest.
Melondia Franklin Corpus, an educator for 36 years, finally reached her retirement milestone last May. But as soon as she filed for retirement six months prior, she said a flood of calls and solicitation started to pour in from financial advisers pitching retirement services and plans with few details.
"One guy called me, and it was almost a pressure-sale type thing, you know; 'This offer is only going to be good for this week,' blah, blah, blah - and I'm, like, 'No, I don't make a commitment based on that, please send me some information, let me look at it,'" she said.
While Corpus avoided falling into a bad situation, she said a friend who retired right before went into an investment without realizing he couldn't touch his funds for five years without penalty. The new proposal is intended to standardize the rules for everyone paid to offer retirement advice and sell retirement products.
A statement from the Insured Retirement Institute attacked Biden's proposal, claiming the "fiduciary rule will harm the very consumers he wants to help and deepen the nation's retirement crisis by limiting access to sound financial advice."
Existing fiduciary rules from the Employee Retirement Income Security Act and the Securities and Exchange Commission do not comprehensively cover all investment products, such as one-time rollovers from a 401(k) to an IRA.
Corpus says the new protections are a step in the right direction and should be expanded to all consumers.
"An advisor should never be recommending something to any client regardless of their status based on his commission. So I think retirees, definitely, but I think it should be across the board," Corpus explained.
The White House uses the investment product, fixed-index annuities, as an example of where junk fees may cost savers as much as $5 billion annually. Meanwhile, the Insured Retirement Institute claims, "Biden and the Department of Labor showed a fundamental misunderstanding of how the insurance industry and annuity products work for the benefit of consumers," and offered to provide education and information.
The proposal is open for public comment for 60 days before any potential revisions are made.
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