New Fiduciary Rule Tightens Standards for Financial Advisers: What You Need to Know
The Biden administration has announced new rules that will require more financial professionals to adhere to a higher standard when providing financial advice about retirement money. Starting September 23, investment professionals who hold themselves out as trusted advisers will be required to act as fiduciaries, putting their clients’ interests ahead of their own when providing advice on individual retirement accounts, 401(k)s, and similar tax-advantaged accounts.
The goal of these new rules is to minimize conflicts of interest and ensure that financial professionals are not giving advice that benefits them financially at the expense of their clients. The changes, issued by the Department of Labor, will close loopholes that allowed many investment professionals to avoid fiduciary status, particularly when it came to transactions like rolling over savings from a 401(k) plan to an individual retirement account.
The new regulations have been the subject of debate for over a decade, with previous administrations introducing and then retracting similar rules. Critics argue that the new regulation was rushed, but the Department of Labor has made several changes based on feedback from the financial industry while maintaining investor protections.
Individuals seeking financial advice for retirement investments are encouraged to work with fiduciary-level professionals who are required to act in their best interests. This includes fee-only independent certified financial planners who are registered investment advisers. These professionals must eliminate conflicts of interest or disclose them to their clients.
To find a trusted adviser, individuals can look to organizations like the XY Planning Network, Garrett Planning Network, and the National Association of Personal Financial Advisors (NAPFA), which only accept fee-based compensation and minimize conflicts of interest. Newer entrants like Domain Money and Facet connect individuals with independent financial planners who charge flat fees.
Roboadvisers, which use technology to manage investments with the help of human financial advisers, may also be a good option for those starting out or looking for a hands-off investment approach. The most important thing is to ensure that the adviser is a fiduciary, putting the client’s interests first at all times.