Rosalind Evans
In its latest crackdown on unfair fees, the Biden administration announced on Tuesday that it would propose new rules for retirement plan providers, closing loopholes that have long allowed the industry to prioritize profit over customers. These rules aim to rectify the imbalance between the financial industry’s gains and the financial security of retirement savers.
The proposed rules from the Labor Department are intended to ensure that retirement plan providers only sell commodities and insurance products, such as annuities when it is in the best interest of the client. The regulation also aims to hold Wall Street to higher standards when advising clients on rolling over assets from employer plans to other accounts, such as from an employee-sponsored 401(k) to an Individual Retirement Account (IRA).
Lael Brainard, director of the White House National Economic Council, emphasized the importance of financial advisors prioritizing their client’s needs. “Financial advisors should put savers best interest first, and not sell them lower returning products to maximize their fees,” Brainard said. He further highlighted the need to address hidden costs that harm consumers, stating, “When a retirement saver pays for trusted advice that is not in their best interest and comes at a hidden cost to their lifetime savings, that’s a junk fee.”
The push against junk fees is familiar to President Joe Biden, who has previously collaborated with companies such as Airbnb and Live Nation to eliminate unnecessary extra charges customers face when booking hotels, concert tickets, and airfares. By tackling the issue of junk fees in the retirement advisory industry, Biden aims to demonstrate his commitment to helping Americans manage their finances when many are dissatisfied with his economic leadership.
The proposed Labor Department rule is a crucial step towards ensuring that brokerage firms prioritize the financial needs of investors over their profits. This regulation will fill the gaps left by existing Securities and Exchange Commission rules, which do not extend to commodities or insurance products like fixed index annuities commonly recommended to retirement savers. By mandating that retirement advisers act in the best interest of the saver, regardless of the type of product or advice being given, the Biden administration is taking a firm stance against the detrimental practice of charging hidden fees that harm consumers’ financial well-being.
