When you’re looking to an investment advisor to help roll over your 401(k), you might assume the one you choose has your best interests in mind: They’ll help minimize fees and pick the investments best suited for your age, risk tolerance, and financial goals. Because after all, it’s their job.
But until Tuesday, that actually wasn’t a guarantee. Instead, some were able to advise clients to invest in financial products that lined the advisor’s own pockets, rather than what would likely lead to the best returns for clients. Now, though, the Biden administration is requiring more financial professionals to adhere to a higher standard when providing financial advice, a move experts are calling a win for the average retirement saver. In fact, it could help workers keep as much as $5 billion of their own money each year related to one insurance product alone, according to the Council of Economic Advisers.
Called the fiduciary standard, the rule means investment professionals have to act in their client’s best interests rather than their own when advising them on their individual retirement accounts, 401(k)s, and other similar products. It’s meant to prevent conflicts of interest by deterring financial advisors and insurance agents and brokers from promoting products purely because they stand to collect a commission from them.
401(k) plan administrators at companies must already adhere to this standard, and financial advisors typically must as well when recommending certain securities, like mutual funds. The new rule, introduced by the Department of Labor last fall, expands to include advisors and brokers who give one-time advice to savers rolling those employer-sponsored assets into an IRA or annuity.
That’s a big deal given Americans rolled over almost $800 billion from 401(k)s and other employer plans into IRAs in 2022, the White House said when it introduced the rule in October 2023. A rollover typically happens when workers move jobs, retire, or want to combine multiple accounts.
Under the guidance, financial professionals making retirement recommendations must “establish, maintain, and enforce written policies and procedures reasonably designed to … identify and at a minimum disclose, or eliminate, all conflicts of interest associated with such recommendations.”
“These rules are already many of the same standards set for CFP professionals,” says Andrew Fincher, a Virginia-based certified financial planner. “This is great that practice standards will now encompass a wider net to include others within the financial professional industry.”
‘How it should be’
The rule is a “straightforward, commonsense measure,” says Joe Petry, a Missouri-based CFP.
“It’s all about restoring the kind of trust that should be the bedrock of any relationship between a financial advisor and a retirement saver,” says Petry. “This rule ensures that advisors must put their clients’ interests front and center, with no ifs, ands, or buts about it. That’s how it should be.”
The Biden administration has promoted the new rule as part of a broader effort to crack down on the “junk fees” consumers are often forced to pay on everything from airline tickets to ATM withdrawals. But the effort to implement the fiduciary rule change started a decade ago, under the Obama administration. A rule implemented then was delayed by the Trump administration and later struck down by a federal court in 2018. Biden’s could face similar legal hurdles in the months to come.
This time around, the Biden administration made its case for the rule by highlighting the dangers of annuities, a financial product issued by insurance companies that’s grown in popularity but which research has foundcan be sold using deceptive tactics.
“Annuities are critically important financial tools … but a non-fiduciary sales approach has tarnished their reputation and limited adoption,” said David Lau, founder and CEO of DPL Financial Partners, which sells commission-free annuities. “High costs and misaligned sales incentives have led to consumer mistrust and misunderstanding of these products; commissions are at the root of these problems.”
Opponents of the rule, including members of the financial industry, say it will limit access to retirement advice for some Americans. Many CFPs, who adhere to the fiduciary standard, charge a percentage of the assets they are managing, ranging from 0.25% to 1%, which can be cost prohibitive. Others charge a flat fee or hourly rate.
Still, advisors and other proponents say the rule—scheduled to go into effect in September 2025—will help rebuild trust among the industry and savers.
“This rule isn’t just a change—it’s a return to the fundamentals of good business, where trust is not just expected but demanded. And that’s good for everyone,” says Petry.