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The Final Rule

May 5, 2016

IRAs and 401(k)s – the technicalities of retirement funds and finance can be overwhelming. When preparing for retirement, it is not uncommon to rely on the advice and direction of an experienced financial adviser, also known as an investment or retirement adviser, to help navigate different investment options and ensure your assets are protected.

Although seemingly astounding, under limited regulations that have not been updated since the Employee Retirement Income Security Act (ERISA) was changed in 1975, some retirement advisers are not legally obligated to act in their client’s best interests.

While most financial advisers do practice ethically, some advising firms incentivize their employees to steer clients into bad retirement investments that have high costs and low returns, as a means to increase their own compensations.

“The Conflict of Interest Final Rule,” effective June 7, 2016, by the Department of Labor, will impose regulations on retirement advisers and update retirement protection standards in response to startling statistics from the White House Council of Economic Advisers that suggest conflicts of interest in retirement savings advice costs Americans $17 billion per year by requiring retirement advisers to operate according to a “fiduciary” standard.

The Final Rule:

  1. Defines when an adviser becomes a “fiduciary,” and the duties of a fiduciary
  2. Requires fiduciaries to provide impartial advice in their client’s best interests
  3. Defines which communications and relationships are and are not considered fiduciary
  4. Includes the “best interest contract exemption” which allows advisers to receive certain types of compensation not formerly permitted under ERISA, under the condition that they adhere to fiduciary standards
  5. Creates an additional avenue by which advisers can be held accountable if they do not act in their client’s best interests

Financial advisers and their firms must implement these regulations by April 10, 2017, or they can be held accountable under the Final Rule.