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Investor protection rule delayed

By Sheyna Steiner ·
Wednesday, May 28, 2014
Posted: 2 pm ET

investing-blog-boss-lying-to-an-employee-fullRegulators can't seem to get a handle on rules around protections for investors. The Department of Labor, or DOL, has been endeavoring to update the definition of fiduciary as it pertains to professionals advising retirement plans. The proposed rule, due out in August, has been kicked back to January 2015, the website for Pensions and Investments reported on Tuesday.

Here's the issue: The Department of Labor wants to expand the definition of fiduciary to include various financial professionals who advise retirement plans such as 401(k)s. As it is now, some advisers can sell products to retirement plans that are not necessarily in the best interests of participants.

The financial industry and some members of Congress have opposed the DOL's efforts, saying that a higher level of responsibility to investors would limit advisers' ability to discuss retirement plans with their clients and limit investor choices.

Meanwhile, no one has seen the new rule.

The DOL did issue a proposal to expand the fiduciary definition back in 2010, but it was widely panned. In 2011, the regulator announced that the rule would be redrafted and rolled out again.

The fiduciary issue gained widespread traction in the Dodd-Frank Act, which authorized the Securities and Exchange Commission to study the issue and determine whether investors would benefit from a higher standard of care. The SEC found that investors would benefit. Studies have shown that investors can't differentiate between the financial professionals who must act in their best interest and those who do not.

Writing on the website yesterday, the president of The Institute for the Fiduciary Standard, Knut A. Rostad, had this to say:

The regulatory battle today is not just about investor protection. It is better understood as whether regulations will protect business models with rules that allow massive opacity, material conflicts of interest and deceptive communications -- or not.


Wondering what the big deal is? Here's how the fiduciary standard protects you.

What should regulators do? Cave in to industry pressure or step up for investors?

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Follow me on Twitter @SheynaSteiner.

Senior investing reporter Sheyna Steiner is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers.

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