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US Department of Labor Raises “Standard of Care” for Retirement Plans with New Rule

Retirement plan care improvement

Raising the “standard of care” for your retirement plan

June 25, 2024, South Carolina: Retirement planning is getting a new spotlight with the introduction of a new government rule. On April 23rd, the US Department of Labor released its final version of the “Retirement Security Rule”. This rule outlines a higher standard of care for retirement plans, and it has raised questions and sparked conversations within the financial community.

What the New Standard of Care Means

The Retirement Security Rule, as per the US Department of Labor, sets a new “standard of care” for those handling retirement plans. This essentially means movement towards more protections for consumers. Those handling retirement plans will now be obliged to adhere to a heightened standard in their operation.

According to Jon Robertson, a certified financial planner with Abacus Planning Group, “This ruling mandates that all retirement investment advice must be in the best interest of the client. This includes any advice on distributions or rollovers from a retirement plan.”

Robertson added that the rule doesn’t just apply to financial advisors. Any professional, such as accountants or attorneys, who offer counsel on retirement plans will need to consider this standard.

Implications for the Retirement Plan Holders

Raising the standard of care has several implications for individuals holding retirement plans. Under the new rule, advisors must not only act in the best interests of their clients but also disclose any potential conflict of interest they may have. They will also be required to provide a rationale for any recommendation they make, ensure the advice is suited to the client’s financial situation and goals, and continuously monitor the client’s retirement account performance.

In essence, this will ensure greater transparency, more rigorous monitoring, and potentially more secure retirement plans for the planning individuals.

Impact on the Financial Planning Industry

Given this renewed emphasis on fiduciary duties, the financial planning industry is likely to experience changes. When advisors are held to a higher standard, it may result in a more rigorous selection process for investment options and could influence a shift towards low-cost investment products. More rigorous regulatory oversight could potentially lead to increasing costs of compliance for investment firms, and these costs could trickle down to consumers.

However, the commercial implications of the rule remain to be seen. The overall impact will largely depend on how financial planning firms interpret and incorporate these regulations into their businesses.

Conclusion

The Retirement Security Rule is a significant step forward in retirement plan care standards. While it’s still early days, it’s clear that the rule will influence how retirement plans are managed and, most importantly, how plan holders are treated by their financial advisors. Those nearing retirement or currently planning for it should keep an eye on these developments, as their retirement plan could be affected.

US Department of Labor Raises "Standard of Care" for Retirement Plans with New Rule

HERE Irmo
Author: HERE Irmo

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