Biden Cracks Down on Junk Fees; Here’s How it Affects Your Retirement Savings

The Biden administration is set to introduce new regulations aimed at tightening the oversight of retirement plan providers to eliminate practices that prioritize their profits over the well-being of customers. This move represents the administration’s ongoing efforts to curb what it deems “junk fees” in the financial industry.

Under the proposed rules from the Labor Department, retirement plan providers will be required to offer only commodities and insurance products, such as annuities, to clients when it is clearly in the customer’s best interest. Additionally, the rules will establish higher standards for Wall Street firms when providing advice to individuals transitioning their assets from employer-sponsored plans, such as 401(k)s, to Individual Retirement Accounts (IRAs).

White House National Economic Council director Lael Brainard urged advisors to prioritize the interests of savers and refrain from recommending lower-performing products solely to maximize fees. Brainard described such fees as “junk fees,” where unsuspecting retirement savers pay for advice that ultimately harms their long-term savings.

The White House Council of Economic Advisers (CEA) emphasized that financial advisers have a fiduciary duty to prioritize their clients’ interests over their own commissions when recommending investments in a blog post published on Tuesday.

President Joe Biden and his administration have teamed up with companies such as Airbnb and Live Nation to combat excessive fees in various consumer sectors, including hotel bookings, air travel, and concert tickets. Additionally, the administration has previously announced actions to eliminate banking fees and hidden charges on cable bills as part of that effort.

Addressing such fees serves as a means for Biden and his allies to demonstrate their commitment to reducing costs, particularly as many Americans express dissatisfaction with the administration’s economic policies.

The proposed Labor Department rule intends to compel brokerage firms to prioritize the needs of investors over products that yield higher profits for the firms themselves. While Securities and Exchange Commission rules already mandate that advice regarding securities, such as mutual funds, must be in the saver’s best interest, this authority does not extend to commodities or insurance products like fixed index annuities, which are frequently recommended to retirement savers.

The new rule seeks to ensure that retirement advisors consistently provide advice that aligns with the saver’s best interests, regardless of whether they are recommending securities or insurance products. The policy applies to all situations where advice is given, including rollovers from 401(k) plans to Individual Retirement Accounts (IRAs).

The existing federal law governing retirement plans does not always mandate that retirement advisors, in cases of one-time advice, exclusively safeguard the saver’s interests. With approximately $779 billion rolled over from defined contribution plans, like 401(k)s to IRAs in 2024, the proposed rule aims to ensure that advice given to savers consistently serves their best interest.