Getting good, honest guidance from a financial adviser is an essential part of planning for your financial future. But how can you know whether the financial adviser you’re dealing with actually has your best interest at heart? This question is particularly important for retirees, since aging Americans are often at greater risk of manipulation by unscrupulous advisers.

One helpful way to evaluate a financial adviser is to ask whether he or she is acting as a fiduciary. Basically, in order to qualify as a fiduciary, an adviser has to work solely on your behalf and make recommendations that benefit you, rather than acting in ways that are designed primarily to line their own pockets through higher commissions and fees. The challenge is that not all financial advisers are actually qualified as fiduciaries, and it’s not always easy to discern who is and who isn’t.

Now the Biden Administration is weighing in with a new proposal to protect seniors against financial advisers who would take advantage of them. As described in this recent article from Moneywise, written by reporter Bethan Moorcraft, the White House is advocating new regulations that will require those providing retirement-related financial advice to seniors to act in the client’s best interest – in other words, to act as a fiduciary. Will the ruling protect vulnerable seniors? We’ll see.

New Rule Protects Seniors from “Unscrupulous” Financial Advisers

“President Joe Biden’s administration has proposed a new rule that will protect Americans from being scammed out of their retirement savings by unscrupulous financial advisers,” the Moneywise article begins. According to a statement by the President, the reason for the new rule is clear.

“This is about basic fairness,” President Joe Biden remarked when announcing the proposed rule. “People are tired of being played for suckers.”

As Moorcraft explains in her report, The White House proposal (click for the full text) will eliminate some of the loopholes that govern financial advisers, requiring them to “give retirement advice in the best interests of savers, rather than chasing the highest payday.”

According to figures quoted by President Biden, bad financial advice “by unscrupulous financial advisers driven by their own self-interest” can end up costing retirees as much as 1.2 percent per year in lost investment. “That doesn’t sound like much,” Biden said, “but if you’re living long, it’s a lot of money. Over a lifetime, it can add up to 20 percent less money when they retire.”

Some Financial Advisers Ignore Conflicts of Interest

As described in the Moneywise report, the problems arise when advisers push specific investment products because they’ll earn higher commissions, “even if those products generate poor returns and aren’t in the best interests of retirement savers.”  Biden remarked that this practice amounts to a scam.

“People should be able to … get advice from a so-called expert [knowing] they are getting real help, not getting ripped off,” the President asserted.

One example cited by the White House: fixed index annuities. “When advice is sound, many annuities can be steady, reliable sources of retirement income, much like Social Security,” said Biden. “But when the advice is self-serving, annuities [can] drain people’s savings and deliver much less than is expected by that person.” The resulting losses in retirement savings can add up to billions for the economy as a whole, all because, as Biden put it, “some brokers sell bad annuities” strictly to earn fat commissions.

New Rule Gives Financial Advisers Fiduciary Duties

Writing for Moneywise, Moorcraft explains, “Under the new proposed rule, all financial advisers giving retirement advice and selling retirement products would have a fiduciary duty to act in their clients’ best interests — rather than chasing the highest payday.”

As the article describes the situation, many of the rules governing financial practices haven’t been changed in nearly 50 years, since the Employee Retirement Income Security Act of 1974 (ERISA) established minimum standards for pension plans in private industry. “That was the same year that Individual Retirement Accounts were created and six years before the first 401(k) plan was implemented,” says Moneywise.

“Things are different now,” the President observed, “but the rules haven’t caught up.”

Financial Advisers Governed by a Mix of Rules

Part of the problem, the article suggests, lies in laws which are inconsistent. “Financial advisers are subject to the Securities and Exchange Commission’s (SEC) Regulation Best Interest (Reg BI),” says Moneywise, “which means they must consider retirement savers’ best interests when recommending securities like mutual funds. But Reg BI doesn’t typically extend to commodities or insurance products, like fixed index annuities, which are governed by state laws.”

The result of what the White House statement calls “inadequate protections and misaligned incentives” resulting from these regulatory loopholes is a skyrocketing jump in sales of fixed index annuities – up 25 percent year-to-date.

“The new rule would close that governance loophole and ensure that retirement advisers uphold the same fiduciary standards, regardless of whether they’re recommending a security or insurance product and where they are giving advice,” says Moneywise. “If advisers breach their fiduciary duty under this new rule, they would face serious penalties, including having to pay restitution and additional financial penalties.”

Breaking News: Rajiv’s New Book is Here!

We have big news! The long-awaited book by Rajiv Nagaich, called Your Retirement: Dream or Disaster, has been released and is now available to the public.  As a friend of AgingOptions, we know you’ll want to get your copy and spread the word.

You’ve heard Rajiv say it repeatedly: 70 percent of retirement plans will fail. If you know someone whose retirement turned into a nightmare when they were forced into a nursing home, went broke paying for care, or became a burden to their families – and you want to make sure it doesn’t happen to you – then this book is must-read.

Through stories, examples, and personal insights, Rajiv takes us along on his journey of expanding awareness about a problem that few are willing to talk about, yet it’s one that results in millions of Americans sleepwalking their way into their worst nightmares about aging. Rajiv lays bare the shortcomings of traditional retirement planning advice, exposes the biases many professionals have about what is best for older adults, and much more.

Rajiv then offers a solution: LifePlanning, his groundbreaking approach to retirement planning. Rajiv explains the essential planning steps and, most importantly, how to develop the framework for these elements to work in concert toward your most deeply held retirement goals.

Your retirement can be the exciting and fulfilling life you’ve always wanted it to be. Start by reading and sharing Rajiv’s important new book. And remember, Age On, everyone!