New U.S. Labor Dept Rule Tightens Retirement Investment Advice Guidelines to Minimize Conflicts and Help investors make better rollover choices.

In an ambitious new initiative by the U.S. Labor Department, brokers and financial advisors providing retirement investment advice are set for stricter guidelines under a “fiduciary” rule aimed at minimizing conflicts of interest in recommendations made to investors. The move follows concerns that some rollover suggestions – which see money moved from 401(k) plans into individual retirement accounts (IRAs), often as part of an employee’s retirement strategy – have been tainted by vested interests, particularly those related to commission earnings. Katrina Berishaj, a lawyer at Stradley Ronon Stevens & Young and co-chair of the firm’s fiduciary governance group said: “The Department of Labor was not shy about that.”
With almost 5.7 million Americans rolling over money into an IRA in 2020 alone (according to Internal Revenue Service data), it’s a significant policy issue for the department, with more than $779bn transferred from workplace retirement plans last year, according to Council of Economic Advisers analysis.
The new rule is expected to bring about major changes as many rollover recommendations today are not bound by fiduciary rules under Employee Retirement Income Security Act (ERISA) guidelines that date back to the mid-1970s – and a large proportion aren’t made within an ongoing advice relationship, attorneys told Harpers Bazaar. Under these prerequisites in today’s legal framework, many rollover recommendations do not meet fiduciary criteria because they are only offered as one-off suggestions to clients.
Under the new Labor Department rule – which will take effect on January 1st next year unless challenged by industry groups who may seek a judicial review of it – advice regarding transferring funds from an IRA at one institution to another, irrespective of whether that involves cashing out, will be treated under fiduciary criteria too.
While critics warn that the rule could hinder retirement savers’ accessibility to financial guidance and raise costs for consumers, supporters believe it represents a positive step forward in ensuring investors receive more honest advice regarding rollover suggestions based on their unique needs and circumstances. Recommendations from insurance agents selling annuities are expected to be most affected by the new rule due to differences between current legal guidelines versus those set out under ERISA criteria, according to analysts at TD Cowen Washington Research Group.
The Labor Department’s move comes as Americans live longer and must make their savings last for more years – a factor that has made rollovers an increasingly significant policy issue in the eyes of department officials.