Seeking to Toughen the Rules for Brokers

Prionace_glauca_by_mark_conlinWhen you seek advice from a professional about where to invest your retirement savings, you hope the advice giver is acting in your best interest — not profiting at your expense.

But right now it’s all too easy for stock and insurance brokers to avoid rules that require them to put their customers first, particularly when dealing with their individual retirement money.

The Department of Labor, which oversees retirement plans, is working on regulations to change that, at least as far as your individual retirement accounts, 401(k)’s and related accounts are concerned. But the insurance and brokerage industries, with the support of some members of Congress, are waging a campaign against any proposed new rules, fearing the effect it could have on the way brokers are paid

“This is all about insurance agents and brokers who want to provide advice that is in their own best interest and to continue selling high-cost products in I.R.A.’s,” said Mercer Bullard, an associate professor at the University of Mississippi School of Law. “This debate is all about I.R.A.’s. That is where the money is.”

There are certainly tall piles of money at stake. I.R.A. assets totaled $5.7 trillion at the end of March, according to the Federal Reserve, a large chunk of which comes from rollovers from 401(k)’s and other employer-sponsored plans.

The Labor Department estimates that another $3.8 trillion was held in 401(k) type plans at the end of June; a significant part of that will continue to pour into I.R.A.’s in the future.

Here is how the issue could affect a consumer: Let’s say you are thinking about rolling over your 401(k) retirement plan into an I.R.A., and you call a broker for suggestions. Because the advice provided is “one-time” advice, experts say, the broker doesn’t have to recommend products in your best interest.

In fact, when it comes to I.R.A.’s and some other retirement plans, brokers and insurance agents need to meet a five-part test before they are obliged to act as fiduciaries, which is the legal term for advisers who are required to put their clients’ interests ahead of their own. One of the conditions that lets them avoid the fiduciary requirement is providing advice on a one-time basis.

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