Broker-Dealers: Adapting to The Retirement Security Rule
Matthew Drinkwater , corporate vice president, LIMRA Annuity and Retirement Research
Read the full MarketFacts article on LIMRA.com .
September 2024
The rules governing how financial professionals (FPs) offer investment advice are complex and promulgated by multiple regulatory bodies at the federal and state level. Among the most noteworthy new regulations is the Department of Labor’s proposed Retirement Security Rule, which defines whether an FP is an investment advice fiduciary for purposes of the Employee Retirement Income Security Act (ERISA).
Retirement Security Rule
Along with other changes involving avoidance of conflicts of interest, reasonable costs and disclosures, the proposed rule would significantly impact how broker-dealer (B-D) representatives can provide advice related to rollovers from workplace retirement savings plans into individual retirement accounts (IRAs). While investment advisor representatives affiliated with registered investment advisory firms already operate within a fiduciary standard of care, B-D representatives generally do not, and instead have acted within a suitability standard when advising their clients on rollovers (and, if selling variable products, within the precepts of Regulation Best Interest). The rule may also impact representatives’ annuity product mixes, specifically by shifting toward lower-cost products — or by shifting away from annuities entirely.
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To understand their perspective on the Retirement Security Rule, LIMRA surveyed over 300 registered representatives of B-Ds in May-June 2024 (for additional information, see Annuities and Advisors’ Practices, LIMRA, 2024). Most registered representatives surveyed have at least some familiarity with the Retirement Security Rule. Just over half (54 percent) claim to be “somewhat familiar” and one-third (34 percent) claim to be “very familiar.”
Rollovers
When those who were at least somewhat familiar with the rule were asked how it might affect how they and their firms handle IRA rollover transactions ...
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