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Rolling out a New Rule on Retirement Advice
The Department of Labor is cracking down on retirement investing advice.
Happy Sunday everyone, and welcome to Benzinga’s financial advisor newsletter.
On Tuesday, the US Department of Labor issued a final fiduciary rule that will regulate investment advice for retirement planning.
In today’s industry chatter piece, we break down the new rule and its implications for advisors and retirement savers.
Lastly, if you would like to be featured in our upcoming advisor spotlight editions, click here to send us an email.
INDUSTRY CHATTER
The Department of Labor has finalized new guidelines on retirement advice that will go into effect later this year.
The new rule holds advisors to stricter standards for providing advice to investors on their retirement accounts. The new federal rule will mandate fiduciary obligation on one-time financial advice.
Currently, one-time advice given on accounts such as 401(k)s doesn’t mandate a fiduciary obligation. It’s a common occurrence for retirees looking for advice.
A fiduciary is a professional acting on behalf of another, required to manage money with a client’s best interests in mind. Whereas advisors weren’t bound to fiduciary obligation when they gave one-time advice in the past, the new rule aims to change that.
In the future, there might be repercussions if an advisor advocated rolling a 401(k) into a pricey annuity or another fee-heavy fund.
Cracking down on “Junk Fees”
The federal government believes the updated policy will save Americans a sizable sum of money, with President Biden saying people are “tired of being played for suckers” when it comes to retirement savings.
The White House expects the rule to increase overall returns anywhere from 0.2% to 1.2% annually.
This push to expand the bounds of fiduciary obligation has a history. It began in 2010 under President Obama, but opposition to new rules slowed down efforts. The Biden administration has prioritized this regulation as part of its crackdown on “junk fees” in the consumer financial sector.
A Barrier to Good Advice
Skeptics of the new rule believe it will inhibit clients from getting good advice for their retirement savings.
The Insured Retirement Institute successfully challenged a similar rule in 2016. The group argues that middle-class Americans will be unable to access helpful retirement advice because of the new standards.
In a statement to Barron’s, the IRI’s chief legal and regulatory affairs officer wrote, “More than ever, consumers need access to knowledgeable financial professionals who can help create a holistic retirement plan.” The organization argues that while annuities can come with higher fees, they can also provide a consistent income stream for retirees. The Insured Retirement Institute has not yet announced if it will challenge the Biden administration’s rule.
There’s plenty at stake when it comes to retirement savings. In 2022 alone, roughly $779 billion was rolled from retirement plans into retirement accounts in the US, according to the White House. The new rule would affect this hefty total in the future, and it’s scheduled to go into effect on September 23rd.
MARKET RECAP
The stock market breathed a sigh of relief as Fed Chair Jerome Powell eased fears of interest rate hikes amid recent inflation surprises.
The Fed now plans to hold rates steady longer to ensure inflation moves toward the central bank’s 2% target.
In April, the labor market displayed some signs of cooling, with the pace of new job creation dropping compared to March, and the unemployment rate unexpectedly rising. The earnings season remains optimistic, with half of S&P 500 companies already having reported, and nearly 80% of them exceeding earnings expectations. Apple made headlines Thursday with a double beat announcement and a record $110-billion stock buyback program.
Sell In May?
The “Sell in May and Go Away” trading strategy is put to the test in election years. Contrary to popular belief, historical data reveals that these periods do not consistently coincide with increased market volatility. In fact, the returns from May through November tend to be positive and even more substantial during years when an incumbent president seeks reelection.
Tesla Hype Cools
Goldman Sachs issued a cautionary note to investors regarding Tesla Inc.’s self-driving technology, stating it hasn’t reached eyes-off capabilities yet. The Wall Street firm's tempering of excitement around self-driving underscores the ongoing challenges and regulatory hurdles Tesla faces in achieving full autonomy.
Housing Entry Barriers
Treasury Secretary Janet Yellen highlighted the severe challenges first-time homebuyers face in today’s market, describing entry as almost impossible. Rising costs and economic pressures have notably tightened the housing market, putting homeownership out of reach for many new entrants despite ongoing governmental efforts to provide support.
Kiyosaki’s Crypto Confidence
Robert Kiyosaki, the author of "Rich Dad Poor Dad," recently disclosed his investment approach to Bitcoin in the face of the cryptocurrency market’s downturn. Kiyosaki advocates buying during the dip, emphasizing his optimistic outlook on Bitcoin‘s future potential and resilience, despite the prevailing market instability.
Top 1% Retirement Goals
Are you on track to join the wealthiest retirees? A recent study revealed the exact retirement savings amounts held by the top 1% at different life stages. This benchmarking could serve as a motivational tool or a reality check, helping individuals gauge their financial planning for retirement.
WHAT THE PROS ARE WATCHING
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THE WEEK AHEAD
Economic Data
Monday: Richmond Fed President Tom Barkin speaks, New York Fed President Williams speaks
Tuesday: Consumer credit
Wednesday: Wholesale inventories, Fed Gov. Cook speaks
Thursday: Initial jobless claims
Friday: Consumer sentiment (prelim), Monthly U.S. federal budget
Earnings
Monday: Eli Lilly, Spirit Airlines
Tuesday: Ally Financial, Bank of America, Budweiser
Wednesday: AMC Entertainment
Thursday: First Advantage
Friday: Axon Enterprise, American Homes 4 Rent
Click here for the full calendar of economic data and earnings reports.
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