Amid a protracted debate over how best to protect investors from conflicted advice, there’s only one clear message for retirement savers: Don’t let your guard down.
In the coming months, the Securities and Exchange Commission is expected to finalize a rule requiring brokers to act in customers’ best interests when making investment recommendations—but that rule has been heavily criticized by investor advocates, who say it leaves the door open to conflicted advice. The U.S. Department of Labor, meanwhile, has said it is “considering regulatory options” in light of a 2018 court decision vacating its “fiduciary rule.” That rule would have required financial professionals giving advice on retirement accounts to put clients’ interests first. And a handful of states, tired of waiting for action in Washington, are working on their own fiduciary standards.
Where does all this leave investors? For the moment, just where they started: highly vulnerable to financial professionals who have no legal obligation to put customers’ interests first. Investors “must approach everything as a buyer-beware situation until investor protections are strengthened,” says Dina Isola, an adviser at New York City–based Ritholtz Wealth Management.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Stricter investment-advice standards could particularly benefit older investors, who are often pitched products that can be costly and difficult to sell—such as non-traded real estate investment trusts, says Michael Pieciak, president of the North American Securities Administrators Association. All told, conflicted investment advice costs retirement savers about $17 billion a year, according to a 2015 study by the White House Council of Economic Advisers.
It has been nearly a decade since the Dodd-Frank Act authorized the SEC to require that brokers and investment advisers play by the same rules when advising clients. Investment adviser representatives already have a “fiduciary” duty to put clients’ interests first. But brokers are still held to a lower standard, requiring them to make recommendations that are merely “suitable” for customers. So if a product pays the broker a fat commission but fits your investment objectives, the broker can recommend it over lower-cost options. To make things more confusing, many professionals are registered as both brokers and investment advisers.
The Proposed SEC Rule to Protect Investors
The SEC’s “Regulation Best Interest” proposal is designed to strengthen investor protections, in part by “elevating the broker-dealer standard of conduct,” SEC chairman Jay Clayton said in a December speech. To meet the new “best interest” standard, brokers must disclose conflicts of interest and have a reasonable basis to believe a product is in the customer’s best interest, among other factors.
But critics say the rule doesn’t clearly define “best interest.” And a prohibition on putting the broker’s interests ahead of the customer’s is not included in the list of provisions that allow brokers to fully comply with the rule, Barbara Roper, director of investor protection for the Consumer Federation of America, said in recent testimony before the House Financial Services Committee.
Some states are taking matters into their own hands. Nevada’s securities regulator, for example, in January released draft rules imposing a fiduciary duty on brokers providing investment advice, while New Jersey released its own fiduciary-rule proposal last October. “There is some frustration” among states, which “have seen the federal government promise action for nearly a decade,” Pieciak says. But NASAA’s focus, he says, “has been on a stronger final rule from the SEC.”
Seek Out Sound Advice from Financial Advisers
Avoid conflicted advice by doing your homework on financial professionals:
- Search for investment advisers who are held to a fiduciary standard at adviserinfo.sec.gov. Read the adviser's Form ADV for information on services, fees, and any regulatory problems.
- For brokers, go to brokercheck.finra.org to find details on how long they've been in the business, what licenses they hold and their regulatory history.
- Ask financial professionals directly about fees and compensation: How are you paid? Do you stand to earn commissions or other fees on sales of specific products?
-
Quiz: How Much Do You Know About Taxes on Social Security Benefits?Quiz Social Security benefits often come with confusing IRS tax rules that can trip up financially savvy retirees and near-retirees.
-
Are You Ready for 65? The Medicare Initial Enrollment Period QuizQuiz Turning 65 soon? Test your basic knowledge of Medicare's Initial Enrollment Period (IEP) rules in our quick quiz.
-
3 Ways to Stretch the 2026 Social Security COLA For Your BudgetThree steps retirees can take to stretch the Social Security COLA to fit their budgets.
-
10 Retirement Tax Plan Moves to Make Before December 31Retirement Taxes Proactively reviewing your health coverage, RMDs and IRAs can lower retirement taxes in 2025 and 2026. Here’s how.
-
The Rubber Duck Rule of Retirement Tax PlanningRetirement Taxes How can you identify gaps and hidden assumptions in your tax plan for retirement? The solution may be stranger than you think.
-
Older Investors: Boost Your Savings and Retire EarlierThis one measure can help older investors retire up to two years earlier and potentially double their retirement savings.
-
What Does Medicare Not Cover? Eight Things You Should KnowMedicare Part A and Part B leave gaps in your healthcare coverage. But Medicare Advantage has problems, too.
-
457 Plan Contribution Limits for 2026Retirement plans There are higher 457 plan contribution limits in 2026. That's good news for state and local government employees.
-
Estate Planning Checklist: 13 Smart Movesretirement Follow this estate planning checklist for you (and your heirs) to hold on to more of your hard-earned money.
-
Medicare Basics: 12 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
The Seven Worst Assets to Leave Your Kids or Grandkidsinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
