AARP Applauds Federal Rule To Protect Retirement Savers From Bad Advice

En español | All financial professionals who give advice on retirement saving plans will be required to act solely in their clients’ best interest under a new federal rule finalized by the Department of Labor today.

AARP fought hard for the rule, which closes loopholes that allow some financial professionals to steer retirement savers toward products that offer higher commissions or other perks and often come with high fees, rather than toward investments that best meet the clients’ needs.

Under the new regulation, which takes effect Sept. 23, all financial advisers providing advice on 401(k)s, individual retirement accounts (IRAs) and annuities will have a “fiduciary duty” to put retirement savers’ interests first, a standard that already applies to most financial professionals.

That means advisers must give “prudent, loyal, honest advice free from overcharges” and “avoid recommendations that favor the investment advice provider's interests — financial or otherwise — at the retirement saver's expense,” the White House said in a news release.

Speaking at a White House event to announce the new rule Tuesday, AARP Chief Advocacy and Engagement Officer Nancy LeaMond said it “formalizes what Americans already expect their financial advisors should be doing.”

“AARP research shows that retirement savers assume that all financial advisors are giving them good advice, and because of this, they rely on it,” she said. “Unfortunately, that advice is not always in their best interest.”

The rule updates regulations adopted 50 years ago, when most people relied on traditional pensions to fund their retirements and before the existence of retirement savings vehicles such as 401(k) plans, which shifted the burden of retirement planning to workers.

The outdated regulations “simply are not providing the protections America’s workers need and deserve for their retirement savings,” Lisa M. Gomez, the Labor Department’s assistant secretary for employee benefits security, said in the release. “The investment landscape has changed. The retirement landscape has changed.”

Conflicts of interest in retirement advice can cost retirees up to 20 percent of their retirement savings over their lifetime, according to data released by the White House.

AARP's support of the rule change is part of our larger push for policies and legislation to address the nation’s retirement savings crisis.

We submitted comments to the Labor Department and testified before Congress in favor of the rule change, and our members sent more than 190,000 emails to Congress in support of the proposal.

AARP also led a coalition of more than 60 advocates in writing to Congressional leaders Tuesday in support of the new rule.

"We stand ready to see this rule fully implemented, and to continue our work to close the retirement savings gap across the country," LeaMond said.

Learn more about the retirement savings rule and keep up with AARP’s retirement coverage.

This story has been updated to reflect new information.

Natalie Missakian covers federal and state policy and writes AARP’s Fighting for You Every Day blog. She previously worked as a reporter for the New Haven Register and daily newspapers in Ohio. She has also written for the AARP Bulletin, the Hartford Business Journal and other publications.