The Department of Labor (DOL) is soon to release a rule proposal that is expected to strengthen protections for retirement savers who receive conflicted advice from their financial advisers. Due to loopholes in the DOL’s current rules, financial professionals and firms are free to put their own self-interest ahead of retirement investors’ interests. They may steer retirement savers into products, services or account types that maximize their own revenues but come with excessively high costs, poor performance, unnecessary risks or illiquidity, thereby undermining retirement savers’ financial security. Conflicts of interest among many advisers take a huge toll on the ability of millions of hardworking Americans to have a financially secure and dignified retirement.

We hope and expect the DOL’s forthcoming rule will close those loopholes to ensure that all financial professionals are required to provide advice that is in retirement savers’ best interest and that any conflicts of interest do not taint their advice. It is important that this standard apply regardless of the type of financial professional the retirement saver turns to or the type of product that a financial professional recommends.

Because of loopholes in the definition of who is considered a fiduciary under the Employee Retirement Income Security Act (ERISA) of 1974, some financial professionals are allowed to provide investment advice without being held to the high professional standards appropriate to their vital role. Studies indicate the annual costs to retirement savers attributable to conflicted advice is huge, representing tens of billions of dollars in lost savings every year, and those were conservative estimates.

In 2016, the DOL under the Obama administration finalized a rule that would have addressed this problem, but industry trade associations challenged that rule in court. The courts repeatedly rejected those challenges, but the industry finally found a sympathetic panel in the U.S. Court of Appeals for the Fifth Circuit, which vacated the rule in March 2018. Thereafter, the DOL under the Trump administration finalized another rule in late 2020, but it failed to close the loopholes and ensure that advisers must always put their clients’ interests first.

It is important that any new DOL proposal addresses a number of gaps in the current rules. For example, those who provide investment recommendations are not subject to the ERISA standards unless they render advice to their clients on a regular basis. That means that advice to roll the accumulated assets in a retirement plan over to another type of account or investment vehicle, including an IRA, is not covered. Yet, those decisions can be among the most important financial choices a person ever makes. Similarly, many sponsors of 401(k) plans are individual employers who rely on advisers to help them select a menu of investment options for their employees. The advice they receive from an adviser may also fall outside the scope of the current rules, leaving a plan sponsor exposed to the adviser’s conflicts of interest. And it is key that any rule apply to a broad range of investments, including securities, non-securities and insurance products.

Over the years, many in the financial services and insurance industries have staunchly opposed efforts by the DOL to fix the problem. However, their arguments are not persuasive.

This article was excerpted from a report by Better Markets. Read the full and original article on the organization’s website here.