After more than a year of study, the White House on Wednesday finalised tougher requirements for retirement investment advisers.
The changes are intended to help those saving for retirement build bigger nest eggs while reducing fees and sales commissions they pay to advisers — keeping more money in workers retirement accounts instead of advisers pockets.
Government officials say the new requirements will encourage long-term investing by making sure savers’ financial interests get top priority in any decisions.
This rule-making process began in February 2015, when the US President instructed the US Labour Department to act upon the findings of a White House Council of Economic Advisers study. Those economists had studied the rules involving 401(k) accounts and IRAs, and concluded advisers’ conflicts of interest were resulting in collective annual losses of about $17 billion for consumers.
Old rules meant that an adviser “can steer someone into a product that gives [the broker] a bigger commission at the expense of the customer’s return.
60% of fund growth consumed by fees and charges
“Analysis carried out by MoneyWhizz reveals that up to 60% of a funds growth could be eaten up by fees and management charges over the 35-year period of someone contributing to a private pension (defined contribution) account” said Mr. Frank Conway, Founder of MoneyWhizz.org.
In the US, an adviser will have a fiduciary duty. In other words, he or she has to act in the best interest of the client and put that duty ahead of the broker’s own personal gain.
Retirement accounts get tax breaks, so the U.S. government has a big say in how they work under federal labour laws.
“Those same tax-friendly principles apply here in Ireland with retirement contributions attracting generous tax relief, which currently ranges from 15% to 40% of income” said Mr. Conway.
But many in the financial industry strongly object to the tougher U.S. fiduciary standard, saying it will raise their regulatory and liability costs, and make it tough to work with investors with low-balance accounts.
The National Association of Insurance and Financial Advisors, a trade group, says it will take up the fight in Congress. NAIFA President Jules Gaudreau said financial advisers will “pursue a legislative alternative that will ensure the best interests of retirement savers without obstructing their access to much-needed advice.”