Almost all Americans agree that financial professionals who offer retirement planning advice should be required to act in the client’s best interest, showing that most participants are in accordance with the Department of Labor’s (DOL) controversial fiduciary proposal.
A survey commissioned by the CFP Board found that nearly 97% of respondents believe that financial professionals who make one-time recommendations or other one-time advice about retirement investments must act in the best interest of clients, including any recommendations to roll funds from a workplace retirement account into an individual retirement account (IRA) or annuity feature.
“Workers and retirees seek a financially secure and dignified retirement and deserve to have financial professionals delivering retirement investment advice in their best interests,” said CFP Board CEO Kevin R. Keller, CAE.
The findings support the DOL’s proposed “Retirement Security Rule: Definition of an Investment Advice Fiduciary,” which expands the definition of a fiduciary under the Employee Retirement Income Security Act of 1974 (ERISA) to outside professionals who provide advice on retirement assets. Those defined as a fiduciary under ERISA are required under law to serve in clients’ best interest when providing advice on retirement planning, and currently include plan trustees, plan administrators, and members of a plan’s investment committee.
The new proposal, introduced in October 2023, would expand fiduciary designations to include insurance agents, among other professionals. The DOL hopes the proposal will broaden the reach of ERISA fiduciaries and modernize the current definition to reflect today’s retirement plans and professional advice.
“The Department of Labor’s proposed Retirement Security Rule helps assure clients that they can trust their advisor to help them achieve their investment and retirement goals confidently and ethically,” Keller continued. “This new rule would close existing regulatory gaps from antiquated regulations that were created in 1975.”
The proposal quickly stirred up members of the insurance industry, many of whom noted that insurance agents do not have any prior knowledge or understanding of ERISA and are not governed by overseeing institutions who can educate them on fiduciary status.
“The Department of Labor’s proposed Retirement Security Rule helps assure clients that they can trust their advisor to help them achieve their investment and retirement goals confidently and ethically.”
Kevin R. Keller, CFP Board
Still, CFP Board findings show that Americans expect financial professionals who provide retirement advice to be governed and regulated under a legal body. According to the research, 92% of Americans “understood that the financial professional who recommended moving their funds out of a workplace retirement savings program into an IRA or annuity was required to make that recommendation in their best interest.”
Only 5% of survey respondents did not expect the financial professional to “fulfill a fiduciary role regarding advice on rolling over workplace retirement savings into an IRA or annuity.”
“American investors rely on the recommendations and advice provided to them by financial professionals,” states the research. “Investors assume that financial professionals provide retirement savings advice and recommendations in their clients’ best interests. Further, they broadly agree that financial professionals giving retirement savings advice and recommendations should be required to act in the best interests of their clients, even if they are giving the client one-time advice.”
Advice for low, middle-income earners
Opponents have also argued that the proposal would avert financial professionals from offering retirement advice to low and middle-income earners because the litigation risks involved would make it too expensive to advise people with smaller investable assets.
However, a separate study from the CFP Board found that wasn’t the case. When the CFP Board expanded its scope of the fiduciary duty in its Code of Ethics and Standards of Conduct report, it found that 90% of CFP professionals chose to maintain their current required minimum investable assets for clients rather than raising the minimum, according to the study.
It reported similar findings following the Securities and Exchange Commission’s (SEC) adoption of the Regulation Best Interest (Reg BI) rule, where 82% of CFP professionals did not raise the minimum investable assets threshold for their clients. Nearly four years after Reg BI’s adoption, 42% of CFP professionals surveyed do not require their clients to have a minimum amount of investable assets, the CFP Board found.
“The DOL’s proposed Retirement Security Rule is needed to fill the gaps that Regulation Best Interest and the NAIC Model Regulation don’t cover,” CFP Board General Counsel Leo G. Rydzewski concludes. “It is an important step toward improving retirement security for all Americans. If the rule is adopted, moderate-income savers will gain – rather than lose – access to retirement investment advice that is in their best interests.”
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