Biden’s New Target in Junk Fee Crackdown: Retirement Advisers – Reuters

By Jarrett Renshaw and Trevor Hunnicutt

The Biden administration is taking steps to implement new regulations on retirement plan providers, aiming to eliminate loopholes that allow the industry to sell products that may enhance their profits at the expense of consumers. This move is part of a broader strategy to address so-called junk fees.

The proposed rules from the Labor Department would stipulate that retirement plan providers can only offer commodities and insurance products, such as annuities, when it is in the best interest of the customer. Additionally, these regulations would hold Wall Street to a higher standard when advising clients who are rolling over their assets from employer-sponsored plans, such as 401(k)s, to other accounts like Individual Retirement Accounts (IRAs).

President Biden emphasized that while most financial advisers offer sound advice at reasonable prices, some may direct clients toward financial products that are more beneficial to themselves rather than to those saving for retirement. “I just want you to know we’re watching,” he stated during a White House event highlighting the initiative.

Wayne Chopus, president of the Insured Retirement Institute (IRI), which includes insurance providers, criticized the proposal, claiming it would exacerbate retirement insecurity and limit access to financial guidance for many individuals. “IRI will fight this proposal,” he asserted on social media, warning that it would leave millions of lower- and middle-income workers without access to essential financial advice.

President Biden has aligned with various companies to combat junk fees—additional charges that consumers face when booking services like concert tickets, hotels, and flights. This initiative against such fees allows Biden and his allies to demonstrate their commitment to addressing financial burdens, especially amid growing dissatisfaction regarding his economic management.

The proposed Labor Department rules are intended to prioritize investors’ needs over the sale of higher-commission products by brokerage firms. While existing Securities and Exchange Commission regulations require advice on securities like mutual funds to be in the best interest of clients, this requirement does not currently extend to commodities or insurance products often recommended for retirement savings, such as fixed index annuities.

The new rule aims to ensure that retirement advisers are obligated to act in the best interest of their clients, regardless of the type of financial product being recommended. Currently, federal law does not always mandate that retirement advisers, who provide one-time advice during asset rollovers, strictly prioritize the saver’s interests.

In 2022, Americans rolled over nearly $779 billion from defined contribution plans into IRAs. The proposed regulations seek to close existing loopholes to guarantee that this advice is genuinely in the best interest of savers.

Micah Hauptman, Director of Investor Protection at the Consumer Federation of America, a consumer advocacy organization, expressed support for the administration’s proposal. “Regardless of the financial professional a retirement saver consults or the products recommended, the guidance should always prioritize their best interests,” he stated.