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New Rules Mandate Financial Professionals Act in Best Interests of Clients

Most Americans saving for retirement would presume that financial advisers and brokers must act in the best interests of their clients, but until recently, that has only been a standard, not a rule.

The U.S. Labor Department issued new regulations on April 6, 2016, mandating that financial professionals handling retirement and 401(k) accounts now have a mandatory fiduciary duty to put their clients’ interests ahead of their own ability to generate commissions and fees.

The new rules govern how financial advisers and brokers must handle the management of trillions of dollars that Americans are saving for retirement, rather than only simply allowing them to recommend “suitable” investments—some of which pay an extra undisclosed incentive commission to brokers. That has long meant that brokers could and did recommend costlier investments in order to receive a higher commission or fees from the funds they refer business to.

The White House Council of Economic Advisers examined academic research revealing that Americans were losing an estimated $17 billion a year because of investment professionals putting in their own interest first.

The new regulations may still be challenged in court, especially after the U.S. Labor Department spent years battling Wall Street and the insurance industry, making many modifications after public hearings and criticism.

In fact, U.S. Representatives Phil Roe (R-TN), Charles Boustany (R-LA) and Ann Wagner (R-MO) have just introduced a resolution (H.R. Res. 88) to block the Labor Department’s new fiduciary rules,. This anti-retiree resolution was rapidly approved by The House Education and the Workforce Committee on April 21, 2016.

That’s right: a group of House of Representatives leaders are still pushing back, defending Wall Street’s right to continue getting back-end fees and profit that advisers gain from investments.  

Photo courtesy of Wikimedia Commons


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