Stockbrokers, financial planners and insurance agents who provide advice regarding IRAs and other retirement accounts will have new responsibilities toward clients, and the way they bill their clients may change, under new rules announced by the U.S. Labor Department.
Under the rules, advisors must now act in their clients’ best interests when they make recommendations. In the past, many advisors merely had to make recommendations that were “suitable” for a client, even if what they recommended wasn’t the best possible option.
In addition, advisors must now disclose if they have a conflict of interest (for instance, if the advisor is being paid by a third party to recommend a particular investment), and must adopt procedures to limit such conflicts.
Advisors who receive commissions must have a signed contract regarding them, and all commissions must be reasonable, under the new rules.
The Labor Department estimates that the changes will save investors some $4 billion a year, because they will get better advice and buy fewer inappropriate high-commission products.
As a result of the new rules, it’s expected that many advisors will stop charging commissions altogether, and instead will manage money in return for a flat annual fee or a percentage of the amount invested.