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Retirement Security Rule: What It Means for Investors and Advisors

The Retirement Security Rule introduces new changes to the retirement advice industry. We outline what it means for investors and advisors.

Ahead of and during retirement, people must make many important financial decisions to set themselves up well. These can be complex and involve large sums of money and various moving parts, including types of accounts, benefits, and workplace plans. Because of this, many people enlist the help of financial advisors to invest for retirement.

But how can clients be sure the advisor sitting across the table has their best interest at heart? What is stopping them from recommending products to receive a decent commission?

On April 25, 2024, the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) published the final Retirement Security Rule. Planned to spring into effect on September 23, 2024, this has sweeping implications for the retirement advice industry, intending to protect retirement investors and further define an investment advice fiduciary under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code.

Here are the essentials of the new rule and what it means for investors and financial advisors.

Key Takeaways

  • The DOL has redefined what it means to be an investment advice fiduciary in the retirement planning industry.
  • Financial advisors must uphold high ethical standards and reasonable fee structures when working with retirement plan participants, beneficiaries, and administrators.
  • Investors can expect greater protection and transparency, among other benefits.
  • Retirement advisors can work on a “level playing field” but must ensure their practice complies with the new laws.
Older couple meeting with a financial advisor.

What Is the Retirement Security Rule?

The Retirement Security Rule is an order put forth by the DOL and the Biden-Harris administration that aims to enhance the protections of retirement investors and plan administrators seeking advice. Specifically, falling under ERISA, it extends to both participants, beneficiaries, and administrators of employee retirement plans, such as pensions, 401(k)s, 403(b)s, 457(b)s, and Individual Retirement Accounts (IRAs).

The rule requires financial advisors to always deliver advice and work with clients as a fiduciary. In short, this means upholding the utmost ethical standards, avoiding commissions or conflicts of interest, and practicing with a client’s best interest at the forefront. This is the case even if the advisor deals with a client on a one-time basis, such as a 401(k) rollover to an IRA, which previously has not required an expert to be a fiduciary.

As noted, a vital aspect is that financial advisors can no longer recommend options that earn them commissions regarding retirement plans and their clients. This is because, in many cases, these don’t fit the client’s best interest and are simply for the expert to earn money.

According to Stephen Kates, CFP, Principal Financial Analyst at, “The ruling will hopefully inspire more consumer confidence in the retirement planning and financial advisory industries” and “create more uniformity between different types of advisors such as brokers, accountants, financial planners, and insurance agents.”

What This Means for Clients

The Retirement Security Rule will heavily influence the client side of the retirement planning industry. This includes, as mentioned, increased levels of protection and transparency, a clearer understanding of fee structures, and a better opportunity to increase earnings and avoid unnecessary and hidden costs.

Protection and Transparency

Because the rule concretely says that advisors must deliver objective and careful advice as fiduciaries, investors can rest easier knowing that their retirement planners must suggest investment options in their best interest and not those intended to make the advisor the most commission.

A common characteristic of high-quality financial advisors who uphold a fiduciary standard is client transparency. In other words, investors should be fully aware of how their hired professional earns money and whether conflicts of interest exist.

The final rule allows investors to better understand every cost and fee associated with their retirement accounts and the advice they receive. The advisory process will have fewer, if any, surprise charges, and conflicts of interest must be spelled out.

Fee Structure Adjustments

Due to the rule necessitating a shift to a fee-only structure, some investors with an existing arrangement with an advisor can expect a shift in their fees. In particular, this may be the case for clients with professionals who used a predominantly commission-based model.

Financial advisors use varying payment schedules, however. Therefore, it will be crucial for clients to follow up with their firm or professional or, if registered with the SEC, consult their Form ADV Part 2A, which outlines fee information.

Improved Return Potential

Finally, the rule could mean increased potential for returns for retirement investors. A critical reason is that it mandates advisors to carefully assess a client’s needs and determine retirement accounts and strategies that serve them the best. Therefore, the government has put investors in a better position to see improved earning potential within their retirement plans.

Moreover, the new rule also enables investors to maximize earnings in retirement by avoiding unnecessary fees. The Biden-Harris administration’s initial announcement of the rule on October 31, 2023, stated its intention to significantly remove junk fees that pervade the industry. These are fees that are unexpected or weren’t disclosed. Common examples include overdraft fees, surcharges, and surprise billings.

What This Means for Advisors

Just as the DOL’s new Retirement Security Rule has several influences on clients, it also has important new elements to consider for financial advisors and firms that work in or around the retirement planning industry.

Fiduciary Duty

The foremost change, of course, is that advisors must now act in the best interest of their clients at every point of the retirement planning process, even if it’s just for a one-off appointment, service, or recommendation. Because of the rule, professionals must take heightened care to avoid and disclose conflicts of interest. This means doing the legwork necessary to ensure that investment recommendations fit their clients’ needs.

Kates, an experienced financial advisor, points out that while the new rule puts forth a layer of clarity for the industry, it shouldn’t do much to affect advisors who have already been keeping everything above board. “This will be unlikely to change how most advisors conduct business with clients. Advisors who already place their clients’ needs first will have no reason to change,” he says.

Level Playing Field

One of the intended impacts the rule will have on the industry, according to the DOL, is creating a “level playing field” for financial advisors. Each advisor now must operate under the expectation that their advice is in the consumer’s best interest and accompanied by a transparent fee structure.

Because of the new changes, professionals may need to reassess their compensation structures and make changes to align with the new rule. For instance, this may mean moving from a commission-based structure to fee-only or fee-based compensation models.

Procedural Adjustments

Per Kates, “The biggest impact on how financial professionals” do business with their clients “will have to do with compliance and back office procedures.” Therefore, advisors will have to take a step back and ensure that both they and their organization uphold the new laws in place.

“Advisors will have more burdensome requirements to demonstrate that the current work they already do is still beneficial to their clients,” Kates emphasizes. For example, there may be new documentation, disclosures, and record-keeping requirements that prove compliance and display transparency with investors.

Some firms and independent advisors may need to revise their business practices to comply with the fiduciary rule if they have previously relied on commissions or delivered advice in a non-fiduciary capacity. This may include revising customer agreements and implementing new processes. Advisors may also need re-education to fully understand the rule’s implications to act in their client’s best interest, which could include training in ethical standards, regulatory compliance, and best practices for serving client needs.

Future of Financial Advice

The Retirement Security Rule may also have some likely unintended yet real consequences on the future of the retirement advice industry that advisors should consider. One of the most prominent is that because financial advisors won’t be able to earn from commissions, they may charge higher rates, making their services more inaccessible to people who need them.

When asked about what this rule may mean for the industry, Kates points out that it “adds formality to the standards already inherent to the industry,” but that “[i]n doing so, many firms and independent advisors will continue to move further up-market, leaving a gap of coverage for those mass market households who need guidance but don’t want to settle for a robo-advisor or other automated solutions.”