Financial Planning

Fight to Protect Investors, Retirement Savers Ongoing

Regulators mull more rules for brokers, financial advisers to safeguard your nest egg.

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.

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?

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 12 Best Tech Stocks to Buy for 2022
tech stocks

The 12 Best Tech Stocks to Buy for 2022

The best tech-sector picks for the year to come include plays on some of the most exciting emergent technologies, as well as several old-guard mega-ca…
January 3, 2022
How to Know When You Can Retire
retirement

How to Know When You Can Retire

You’ve scrimped and saved, but are you really ready to retire? Here are some helpful calculations that could help you decide whether you can actually …
January 5, 2022

Recommended

8 Facts You Need to Know About Stock Market Corrections
Markets

8 Facts You Need to Know About Stock Market Corrections

Scary as they are, drawdowns are a normal part of the investing process. Having a financial plan in place and sticking to it is every investor's best …
January 23, 2022
22 Best Retirement Stocks for an Income-Rich 2022
dividend stocks

22 Best Retirement Stocks for an Income-Rich 2022

Ideally, your retirement stocks will help you generate a sizable and reliable income stream. These 22 dividend payers make the grade.
January 21, 2022
12 Questions Retirees Often Get Wrong About Taxes in Retirement
retirement

12 Questions Retirees Often Get Wrong About Taxes in Retirement

You worked hard to build your retirement nest egg. But do you know how to minimize taxes on your savings?
January 21, 2022
14 IRS Audit Red Flags for Retirees
retirement

14 IRS Audit Red Flags for Retirees

Seniors beware: Your actions can increase the chances of the IRS giving your tax return a closer look.
January 21, 2022