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New US Rule Will Protect Citizens Saving for Retirement

  • VOA News

FILE - Connecticut state Senate President Pro-Tempore Sen. Donald Williams, D-Brooklyn speaks about proposed 401k retirement savings plan.

FILE - Connecticut state Senate President Pro-Tempore Sen. Donald Williams, D-Brooklyn speaks about proposed 401k retirement savings plan.

The Obama administration announced the release of a long-anticipated rule Wednesday regarding how the financial industry gives retirement savings advice to clients. The plan includes more concessions to brokers than what was originally proposed six years ago, in an effort to make it less disruptive to current operations.

The fiduciary rule targets brokers and financial advisers who promote retirement plans that may not necessarily reflect the clients' best interests, but instead provide extra commissions to the firms. More specifically, when clients transfer savings from a 401k (required to operate in the saver's best interest), the individual retirement accounts must now be established in the clients' best interests.

Before this rule, financial-product salespeople were only required to give "suitable" recommendations.

Signed contracts

Financial advisors, now "fiduciaries", will have to sign contracts with clients at their first appointments, committing to working in their best interests. One of the recent compromises in the plan, however, states that brokers may give "advice" and retirement savings education without necessarily entering a contract.

The preliminary version of this rule released last April was met with criticism and comments from across the financial community. "With every meeting we took, every comment letter we read...we got smarter and we listened, we learned and we adjusted. You’ll find that reflected in the final rule" Labor Secretary Thomas Perez told Wall Street Journal reporters.

Loopholes

These loopholes, while seen by many as placating critics, may give skeptics the opportunity to further dilute the rule or abolish it entirely under the new administration.

The Wall Street Journal estimates that $14 trillion of retirement savings could be affected by this new rule. The White House Council of Economic Advisers found that conflicts of interest lead to an average of 1 percentage point lower annual returns on retirement savings, adding up to a total of $17 billion of losses for American families each year.

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