In October 2023, President Joe Biden revealed that he intended to stop junk fees. Many industries typically add hidden fees to the original cost—the retirement savings industry is no exception.
Better Investment Advice Expected
The cause for President Biden’s action is that some retirement advisers no longer provide advice for the client’s good. Some of them, the White House said, are making commissions as high as 6.5 percent if they will recommend certain insurance products. Although most advisers are fair, the president wants to end unnecessary junk fees.After the president made his declaration, the Department of Labor proposed that investment advisers start providing better high standards for their customers. When they make investment recommendations, they must give advice based on what is best for their customers and not for themselves.
Although the junk fees may be small, removing them would make a huge difference over a lifetime. That difference could range from 0.2 percent to 1.2 percent annually, which could add another 20 percent in savings throughout the life of the investor. An additional 20 percent would make for a more comfortable retirement for many people when so many are struggling to save anything.
Loopholes When Buying Investment Products
When someone wants to buy an investment product, there is currently some laxity given to the agent selling them. Money.USNews says that agents were not required to recommend products in the client’s best interest when buying investment products and insurance. The Security and Exchange Commission (SEC) does not oversee these sales.Agents who gave one-time advice to clients were not obligated until now to provide suggestions in the clients’ best interest. It does not apply, for instance, when a client chooses to roll over assets from a 401(k) to a Roth account. The new guidelines will change the policy so that potential buyers can be more confident in getting advice that will benefit them.
An agent who is a fiduciary is responsible for making recommendations for the client’s best interest, but it is limited to that. Once a client decides to move money or assets out of the accounts directed by the fiduciary, the agent is free from the rules demanding decisions based on the client’s best interest. The new rules will help guide agents when moving it out of an account for retirement savings.
Some types of retirement savings plans are not covered by current best-interest laws. The plans not covered include commodities, real estate, and annuities. CNN says that annuities are state-regulated, and the laws will differ in each state. Because of the lack of regulation, some of their fees can be high. The government has estimated that annuity fees alone could cost retirement savers up to $5 billion annually.
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The primary thrust of the president’s move is to help people understand the entire cost of a service or product before buying. The cost of additional services also must be identified. It would also create a more competitive spirit among businesses because customers can compare overall costs upfront.
How It Will Affect Other Industries
The White House says the new rule affects many industries. Overall, customers should be able to expect better service, honesty, and openness about all possible fees upfront, including the airline industry, rental housing, lodging, car sales, banking, broadband, and cable providers.The Federal Trade Commission (FTC) predicted that the time saved by consumers looking for pricing details with upfront prices would be more than 50 million hours. Estimates are that the time saved would be equivalent to $10 billion over 10 years.
When Companies Fail to Comply
The FTC says that it will have the power to force companies to be transparent in their pricing. All costs will have to be revealed upfront, as well as what the customer will get for the cost. When this rule is broken the FTC will demand a refund for its customers and seek financial penalties.Resistance Is Expected
One group, Reuters reported, the Insured Retirement Institute (IRI), has openly stated that it opposes the regulation and will fight it. The IRI claims that it will make it harder to get advice. Another group, Investor Protection at the Consumer Federation of America, however, fully supports the action.Find Out If You Are Being Overcharged
You can take the guesswork out of whether or not your retirement account is being overcharged by finding out what you are paying in the way of fees. Fees for an individual retirement account (IRA) are lower than fees for a 401(k). You should find out because it could cost you tens of thousands of dollars over a lifetime. To learn of the fees, you can ask for a fee disclosure statement.Once you have the fees, BusinessInsider says that you can compare fees against industry standards. Compare them at websites such as FinancialPlan or BenchmarkMyPlan.
If you want lower fees, your employer may let you select new, less expensive investment options. It could include low-cost index funds, exchange-traded funds (ETFs), and institutional funds. If you have your retirement account through your employer, you need to know that they may also be paying your fees.
Before you make any changes quickly, consult a certified financial planner (CFP) for advice. They are fiduciaries and must always act in your best interest. You can verify their qualifications at CFP.
The Epoch Times copyright © 2023. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
