Labor Department finalizes rule tightening retirement savings advice

Millions of workers who are saving for retirement and rely on advice from professionals on how to invest their savings will be better protected under a new rule finalized Monday by the U.S. Department of Labor.

The Retirement Security Rule, also called the Fiduciary Rule, updates the definition of an investment advice provider.

It requires advisors to give prudent, loyal, honest advice free from overcharges. And they need to adhere to high standards of care and loyalty when they recommend investments and avoid recommendations that favor the investment advice providers’ interests – financial or otherwise – at the retirement savers’ expense.

In addition, financial institutions overseeing investment advice providers need to have policies and procedures to manage conflicts of interest and ensure providers follow these guidelines.

The updated definition, which takes effect Sept. 23, 2024, applies when financial services providers give compensated investment advice to retirement plan participants, individual retirement account owners, and plan officials responsible for administering plans and managing their assets.

“America’s workers and their families rely on investment professionals for guidance as they save for retirement,” Julie Su, acting secretary of the department, said in a statement. “This rule protects the retirement investors from improper investment recommendations and harmful conflicts of interest. Retirement investors can now trust that their investment advice provider is working in their best interest and helping to make unbiased decisions.”

The rule could save investors up to $5 billion per year, according to an analysis by the Council of Economic Advisers.

The new rules update regulations created nearly a half-century ago that weren’t providing the protections America’s workers need, said Lisa M. Gomez, the department’s assistant secretary for employee benefits security.

Under the final rule, a bank or other financial institution or representative assisting customers with a one-time rollover transaction likely will be considered a “fiduciary.” One-time annuity transactions also will be included under the rule.

AARP, an organization that advocates on behalf of Americans 50 and older, said it’s pleased that all financial professionals who provide retirement investment advice must now act solely in the best interests of their clients.

“We know there is a retirement crisis in America, and this rule – which AARP has long fought for – will allow more hard-working Americans to retire with dignity and financial security,” the organization said in a statement.