Is your financial adviser on your side? There are new rules for managing retirement savings - why investors should care.

By Alessandra Malito

There may now be a distinction between fiduciary responsibilities and your 'best interest'

The Department of Labor's new fiduciary rule requires advisers to act in their clients' best interest when giving advice on retirement savings - but it isn't exactly the same as the Securities and Exchange Commission's Regulation Best Interest guidelines, and investors should know the difference.

The latest rule, known as the Retirement Security Rule, is the Department of Labor's latest attempt to have a fiduciary rule, and states that advisers will have to avoid recommendations that "favor the investment-advice providers' interests - financial or otherwise - at the retirement savers' expense," the DOL said in its announcement on Tuesday.

The last time the DOL put forth a fiduciary rule was under the Obama administration - but the Fifth Circuit Court of Appeals knocked it down under the Trump administration in 2018, saying the DOL was "overreaching."

Critics argue the DOL has released another rule too similar to its predecessor, and that it will hurt clients by restricting access to more products and advice.

"There is a deeply ideological belief among some, particularly the DOL, that consumers need to be protected from advice," said Marc Cadin, chief executive officer of Finseca, a financial-services member organization of retirement and insurance professionals. "The ideological belief is that you can't trust people to give good advice within the client's best interest - that we have to protect consumers from the financial people who are giving guidance."

Annuities and life insurance will still be available, but professionals who recommend these products will have to go through extra hurdles and filters for compliance and liabilities, which they say will make it harder to provide advice.

"It creates a regulatory burden that is so high that it is very hard for professionals who provide guidance to walk through the regulation in order to get the advice that Americans will need," Cadin said.

A majority of states - 45 at the moment - have already adopted a "best-interest" standard for annuity sales that aligns with the SEC's Regulation Best Interest, also known as Reg BI, opponents note.

Retirement savers should know the difference between this new fiduciary rule and Reg BI. The two are similar, but there are a few distinctions that will impact investors.

For example, under Reg BI, if an adviser recommends rolling over a 401(k) into an IRA with securities, that transaction would have to be within the client's best interest - but if they rolled it over into a fixed-indexed annuity, there is no "best-interest" obligation, said Leo Rydzewski, general counsel of the CFP Board, a nonprofit organization that administers a designation with its own set of standards and ethics.

"So the question, which the DOL solved the right way, is why shouldn't advisers have to act in the client's best interest no matter how their retirement assets are going to be invested?" Rydzewski said. "It shouldn't matter."

Advice given in a single event will now be under the rule's protections. "One-time advice can be just as harmful or beneficial as other types of advice and needs to be considered as fiduciary-level investment advice," said Jamie Hopkins, senior vice president of private wealth management at Bryn Mawr Trust. "Education and general communications remain exempt from the fiduciary-advice rule, but individualized advice, even if just once, for compensation can now qualify as investment advice."

The most recent fiduciary rule also differs from the 2016 version because it does not include requirements including a best-interest contract or a public website to list all fees and compensation, Hopkins said.

Still, the DOL attempted to tie this fiduciary rule closely together with Reg BI, experts said.

"If you read the preambles to the new rules of the fiduciary rule, it is clear the DOL tried to align with Reg BI," said Fred Reish, a partner at law firm Faegre Drinker.

The DOL likely did that for a few reasons. First, it allows them to argue in favor of the rule if it goes to court like the previous fiduciary rule did, and second, it makes it easier for financial-services professionals to stay compliant.

"The heavy lift is in the insurance industry," Reisch noted, because these rules are more "demanding" than state regulations governing the industry.

The new rule aside, consumers must still be the most vigilant in their retirement security.

"Even after the passage of the new rule, the onus on selecting and vetting a qualified retirement-planning advisor remains on the consumer," Hopkins said. "You need to ask the adviser if they are a fiduciary, how they are compensated, if they have any regulatory disclosures or issues, about their experience and about their education."

Asking if they're a fiduciary will be key if these protections matter to the investor, as the term "best interest" could apply to both a fiduciary and Reg BI now. Knowing what regulations they abide by, whether on the federal or state level, will also provide consumers with extra knowledge about the type of advice they're getting.

Having these conversations may be uncomfortable, especially if a client has been working with a given professional for years - but it's crucial, experts said.

"My father felt awkward asking his adviser how he was making money because he trusted him," Reisch said. "When it comes to money, it is better to feel awkward and ask the right question, even with a higher standard."

-Alessandra Malito

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04-27-24 0843ET

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