A new federal regulation designed to protect folks saving for retirement appears to be in jeopardy.
The insurance industry is “likely” to prevail in its effort to quash a U.S. Department of Labor rule intended to prevent financial advisors from pushing savers toward fee-laden products, according to a Wall Street Journal report.
The proposed rule would force advisors to recommend strategies that are in the best interest of savers trying to roll money from their 401(k) accounts into an individual retirement account (IRA). In addition, IRA advisors would have to steer clear of misrepresenting the facts and charging savers excessive fees.
The WSJ reports that the insurance industry has fought hard against the rule because it would reduce commissions on annuities, which are often sold as a way to convert retirement savings such as an IRA into guaranteed income. Right now, about a dozen industry groups have sued the government, alleging that the latter overstepped its bounds in proposing the rule.
Recently, annuity sales have been on the upswing, thanks to high interest rates that increase returns, according to the WSJ. Advisors who sell such annuities often make commissions soon after the sale.
Critics note that such incentives create a clear conflict of interest and motivate advisors to push savers toward products with high fees that earn the advisors big commissions.
As Money Talks News founder Stacy Johnson has pointed out, annuities come in many flavors, and they have their pros and cons.
But buying an annuity from someone who earns a commission from the sale is often a bad idea. As Stacy has written:
“Please don’t buy annuities from anyone who is a commissioned salesperson, which most are in this business. I’m not saying they’re all crooks; I’d just rather see you buy something like this from a non-commissioned salesperson.”
If you are interested in an annuity, Stacy recommends looking to a company such as Vanguard, which he says offers “decent deals, quality companies and non-commission-based help.”
Another alternative is to talk with a fiduciary financial advisor who might be able to help you find the right annuity.
For more about the advantages and disadvantages of annuities, check out Stacy’s podcast episode “Should You Buy an Annuity? The Pros and Cons.”
As for the DOL rule, Texas judges overseeing a pair of insurance-industry lawsuits recently forced a stay of the new protections, effectively putting them on hold. The rule otherwise would have gone into effect in September. According to the WSJ:
“In one ruling, a judge said the industry’s case was ‘virtually certain to succeed on the merits.’”