The U.S. Department of Labor is moving to finalize its tough new regulation for financial professionals in April (see SMFN's previous report). The proposed regulation would extend a fiduciary standard (presently applicable to corporate retirement plans) to individual retirement accounts. Under the fiduciary standard, financial advisers would face increased disclosure obligations, extensive and complex compliance obligations, and heightened liability exposure.
The regulation would have a significant effect on the movement of funds from a company retirement fund to an IRA, a move known as a rollover. Advisers have an incentive to recommend rollovers, as they typically get paid fees on these transactions. Under the new regulations, an adviser would clearly have to document why a rollover would be in a client's best interests. Once funds were moved to an IRA, an adviser would have to avoid taking a commission for recommending one investment over another.
The new regulatory scheme is touted by the Department of Labor as a benefit to the American public that will save investors $17 billion each year. That projection may not be accurate. But what seems certain is that the new regulations will slow down the flow of rollovers. There is some suggestion that the new regulations will have an adverse effect on the process of saving money for retirement.