April 25th, 2024, a document was published in the Federal Reserve Daily Journal, stating “The Department of Labor (Department) is adopting a final rule defining when a person renders “investment advice for a fee or other compensation, direct or indirect” with respect to any moneys or other property of an employee benefit plan.” This regulation will become active on September 23rd, 2024.
This regulation protects investors from financial advisors who make advisements based on their profit margins. At times, a financial advisor may make certain high-risk recommendations for investors because the advisors could profit off of fees or client losses. Under this new rule, advisors will have to make recommendations in good faith to benefit the client. If there is a high-risk investment where the advisor would benefit (either from fees or benefits from losses) the advisors would be required to disclose that information. This is reportedly a larger issue amongst older investors who are looking to dip into their savings quickly.
While this rule does not go into effect until later this year, it is important to ask your financial advisors what benefits and fees they are receiving when advising you to make certain investments. Many mutual funds have fees for those managers, but these are often tied to the S&P 500 and are rather reliable. Be sure to do as much research as possible on potential investments before committing funds.
Resources
Federal Register. Retirement Security Rule. https://www.federalregister.gov/documents/2024/04/25/2024-08065/retirement-security-rule-definition-of-an-investment-advice-fiduciary.
Iacurci, G. (2024). Labor Department issues rule to crack down on bad retirement savings advice. CNBC. https://www.cnbc.com/2024/04/23/labor-department-issues-rule-to-crack-down-on-bad-retirement-savings-advice.html.
