In recent years, few things have stirred as much controversy in the world of wealth management as the “retirement security rule” proposed by the Biden administration.
The way the White House presents it, the proposal is simply a way to expand the fiduciary rule — the legal requirement for wealth managers to serve their clients’ best interests — to cover all areas of retirement advice.
Under current law, the administration argues, “loopholes” exempt some counsel from this standard — including guidance on rollovers, advice to retirement plan sponsors and recommendations of insurance products, including annuities. The new rule, which would be implemented by the U.S. Department of Labor, aims to fix that.
“Some advisors and brokers steer their clients toward certain investments not because it’s in the best interest of the client, but because it means the best payout for the broker,” President Joe Biden said as he unveiled the proposal on Oct. 31. “They’re putting their self-interest ahead of their clients’ best interest. And they’re scamming Americans out of hard-earned money.”
That’s not how everyone sees it. Advocates for the insurance industry, which sells annuities, have loudly protested the proposal as cumbersome and unnecessary.
“The president’s attempt to impose another harmful regulation on America’s workers and retirees despite federal court rulings and evidence of its devastating consequences is inexplicable,” Wayne Chopus, president of the Insured Retirement Institute, said in a statement. “IRI and our members will once again work to protect retirement savers from this regulatory overreach.”
On the other hand, the reaction from financial advisors themselves has been more muted. In many cases, that’s because the new policy is unlikely to change much for them — registered investment advisors (RIAs), after all, are already governed by the fiduciary rule.
“The rule would have no impact on my business or any ethical practice,” said Carol Fabbri, founder of Fair Advisors in Lakewood, Colorado. “The ethical standard that the SEC and this rule require is not a challenging or difficult threshold.”
But some financial professionals, including broker-dealers, are not covered by the fiduciary rule. Instead, they’re held to a slightly less stringent standard: the SEC’s Regulation Best Interest, or Reg BI, which merely requires brokers try to avoid conflicts of interest or disclose them. Biden’s proposal is largely designed to patch holes in that regulation.
Here’s a closer look at how the change could affect retirement advisors and their clients — and the fierce debate surrounding it: