What new standards for retirement advice mean for you

WASHINGTON - The Labor Department released more details about a long-awaited rule expected to be released Wednesday that would set limits on the advice that brokers can offer to retirement savers.

Under the "fiduciary rule," which has been in the works since 2010, brokers selling investments to retirement savers would be required to put the client's interest ahead of their own. The sweeping rule change would create a higher standard than the current regulations, which only require that brokers recommend investments that are "suitable," even if it may not be the client's best option.

"This is a huge win for the middle class," said Thomas Perez, secretary of the Labor Department. "In far too many places and on far too many issues, the rules no longer work for working people."

Proponents of the rule say the change will lower investment fees for retirement savers, making it possible for them to keep a bigger share of their returns. The change should reduce their chances of being directed into costly products when simpler and more affordable options are available.

For the typical retirement saver, the change could lead to more of their money being held in low-cost and index-based investments. Some people could be moved from accounts where they are paying commissions for each transaction to accounts where they are charged a fee that amounts to a percentage of their assets, analysts predict.

The rule is meant to improve disclosures and to reduce conflicts of interest. For instance, there may be cases when a firm is paid by a third party such as a mutual fund company for recommending a particular investment. Conflicted investment advice costs savers $17 billion a year, according to an estimate from the White House Council of Economic Advisers. While the new rule won't ban commissions, brokers may have to explain why they are recommending a particular product when a less expensive option is available, and they could face scrutiny if they recommend complicated products.

But some industry pros have said they were worried the change could increase paperwork and limit options for savers with small or modest account balances. Some firms facing higher costs because of the new rules may decide that it doesn't make financial sense to work with savers who have small account balances if they see a cutback in the fees they earn for working with those clients. They may also move away from those accounts if they worry the accounts may lead to more regulatory scrutiny, analysts say.

The rule won't affect people saving through 401(k) plans, which are already subject to fiduciary rules. Educational information offered to retirement savers about types of investments would also still be allowed. But investment firms consulting savers on whether they should keep their money in a 401(k) or roll them over into an individual retirement account (IRA) would be required to meet the new standard on any advice they offer.

While the rule would go into effect in April 2017, financial firms would have until January 2018 to get into compliance. Some firms may decide to move investors from commission-based accounts to fee-based accounts, where funds may be managed by a financial adviser and an investor's costs may be structured as a percentage of assets invested, instead of a fee per transaction, according to a report released in October by the fund research firm Morningstar. Those accounts are already subject to fiduciary standards but may raise costs for investors who rarely make trades and are more likely to hold on to investments for the long term.

Some analysts estimate that the rule has the potential of driving more money into low-cost index funds, which have already been gaining in popularity as more investors become conscious of the fees they pay and skeptical of the ability of fund managers to beat the broader market. The shift could also encourage more people to use discount brokerages or online investment accounts dubbed "robo-advisers," which typically use algorithms to help people create portfolios, according to Morningstar. The online options can often be more affordable than working with a financial adviser, in part because they often using index-based investment options. But some critics say investors who take that approach may need to become more involved with managing their portfolios.