Here’s the new standard your retirement planner must meet

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The Labor Department has raised the bar on investment advice

If you use a financial advisor to help you with your retirement savings, that advisor must now meet new, stricter guidelines for the advice they give.

The U.S. Department of Labor has finalized a new rule, proposed in October, requiring requirers to always place the interests of the client first. That may sound like an obvious thing to do, but department officials say that always isn’t the case.

For example, they point out that many financial advisors and retirement planners have relationships with mutual funds. It might be in their interest if their clients invest in those funds.

Administration officials say the new “fiduciary” rule is designed to eliminate conflicts of interest in the critical area of investing for retirement. Some advisers counter that the services they offer to retirement savers is “free.” Adhering to the fiduciary rule, they say, will require savers to pay for the services they get and that many will not seek professional advice.

When the new rule was proposed last year, the White House Council of Economic Advisors issued a report saying saying savers have been especially vulnerable when they roll over a 401(k) retirement account into other assets.

Non-equity investments

The new rule in particular applies to investments that are not stocks, such as real estate, gold or a fixed index annuity.

“Fixed index annuities are financial products typically issued by insurance companies (and therefore governed by state law rather than federal securities law) with features that could be attractive to risk-averse investors,” the White House report said. “Their returns have both lower upside and downside risk, because they generally cap returns while also putting a floor on losses.”

But the report said this greater certainty comes with additional costs and fees when compared to investments in comparable mutual funds, as well as extended lock-up periods where investors face fees if they withdraw their money.

The new rule will take effect in the fall. Starting Sept. 23, financial advisors and retirement planners must adopt a fiduciary status when working with clients.

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