US Labor Department proposes new fiduciary rule

This week the Department of Labor introduced a proposed rule to expand the types of advice covered by fiduciary protections.

More retirement advisers will be required to put their clients’ interests first.

“Under the DOL’s proposed definition, any individual receiving compensation for providing advice that is individualized or specifically directed to a particular play sponsor (e.g., an employer with a retirement plan), plan participant or IRA owner for consideration in making a retirement investment decision is a fiduciary,” said the DOL in a fact sheet on the proposed rule.

The White House has a system in which brokers earn money from sales commissions or fees on purchases of mutual funds has created conflicts of interest that cost middle-class families and individuals billions of dollars every year. On average, in has resulted in annual losses of 1 percentage point for affected investors, is said in a press release. That’s about $17 billion total per year.

Financial experts managing employer-based plans are fiduciaries and are expected to look out for the participants’ best interests when speaker to brokers or other advisers, who may be “trying to sell them something rather than provide advice in their best interest.” The proposed rule does not consider these transactions fiduciary investment advice if certain conditions are met.

“Committing to a best-interest standard requires the adviser and the company to act with care, skill, prudence and diligence that a prudent person would exercise based on current conditions,” the DOL said.

The rules regarding retirement advice have not been “meaningfully changed,” according to the DOL, since 1975’s Employee Retirement Income Security Act (ERISA). But today most American have IRAs, not ERISA-protected pension plans or 401(k) plans.