The U.S. Department of Labor is proposing a new regulation for financial professionals who advise people on retirement investments. The proposal, which has met with a cold reception from brokers, would impose a fiduciary standard on those who advise people saving for retirement. Brokers are saying that the cost of compliance could force them to drop middle class clients.
The standard currently in effect for brokers providing advice to investors is simply that the advice be “suitable.” The Labor Department’s proposed regulation would require that investment advice be in the “best interests of clients.” The regulation could drive up the cost of giving advice to those with small retirement accounts and could have a negative effect on small brokerages. The regulation would apply to IRA accounts as well.
The proposed regulation is already having effects on investment companies. The Wall Street Journal reports that the costs of compliance were one of the factors that caused American International Group, Inc. to sell its brokerage unit in January. Labor Secretary Thomas Perez has called concerns of investment brokers overblown. Some critics, including financial radio host Dave Ramsey, have said that the new regulation would have a very bad effect on financial advice to middle class investors.
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