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The Biden administration on Tuesday finalized a new rule to crack down on retirement advice given by financial professionals, a move that has already drawn fierce backlash from Wall Street.

The Labor Department regulation aims to ensure that financial advisers, brokers and insurance agents work in the best interests of their clients. It purports to do so by broadening the scope of when these individuals must act as a fiduciary, meaning they have a legal obligation to put their clients’ interests ahead of their own.

Under current law, advisers are allowed to recommend investments that pay higher commissions but aren’t necessarily the best choice for their clients.

“America’s workers and their families rely on investment professionals for guidance as they save for retirement,” said acting Labor Secretary Julie Su. “This rule protects the retirement investors from improper investment recommendations and harmful conflicts of interest.”

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The White House estimated the rule, which will take effect Sept. 23, will affect about 5 million savers and boost retirement accounts by between 0.2% and 1.2% a year and up to 20% over a lifetime. 

The rule applies to one-time advice for individuals rolling 401(k) plans into IRAs, retirement advisers regardless of which state they are located in and advice to plan sponsors about which investments to make available as options in 401(k)s and other employer-sponsored plans. 

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Savings jar

Financial institutions slammed the latest rule targeting retirement advice, warning it could ultimately “hamper the efforts of millions of workers and retirees” to save for retirement.

“Unfortunately, based on our preliminary review, it appears that the regulation will make it much more expensive and difficult, if not impossible, for many consumers to access reliable professional assistance,” said Wayne Chopus, president and CEO of the Insured Retirement Institute, a trade group.

Chopus said the Labor Department attempted to implement a similar rule in 2016 under then President Barack Obama that resulted in more than 10 million retirement account owners with more than $900 billion in savings losing access to their preferred financial professionals. That rule was ultimately overturned in 2018. 

“There is no evidence that this enhanced and comprehensive framework, as it exists today, is not working effectively to protect retirement savers. Yet, [the Labor Department] persists in inflicting an unnecessary, redundant and harmful one-size-fits-all regulation,” Chopus said. 

Labor Department officials said Tuesday the financial retirement rule differs significantly from the Obama-era regulation.

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