Claire Benoist
By Penelope Wang
April 14, 2015

In a move aimed at improving consumer protection for investors, the U.S. Labor Department today proposed a rule that would reduce conflicts of interest for brokers who advise on retirement accounts.

The proposed rule would require brokers to act solely in their clients’ best interests when giving advice or selling products related to retirement plans, including 401(k)s or IRAs.

Conflicted advice has been a longstanding problem for anyone nearing retirement—a parade of financial advisers will line up to help you roll over your 401(k) into an individual retirement account. And all too often, the guidance you get may improve your adviser’s returns more than yours.

A report issued in February by the Council of Economic Advisers found that conflicted financial advice costs retirement investors an estimated $17 billion a year. That’s why President Obama announced his support for the proposal back in February.

The new rule would require brokers to follow what is known as a fiduciary standard, which already applies to registered investment advisers. In contrast to RIAs, stockbrokers—who may go by “wealth manager” or some other title—follow a less stringent “suitability” standard, which lets them sell investments that are appropriate for you but may not be the best choice.

Many brokers do well by their customers, but some don’t. “A broker might recommend a high-cost, actively managed fund that pays him higher commissions, when a comparable lower-cost fund would be better for the investor,” says Barbara Roper, director of investor protection for the Consumer Federation of America.

During the next 75 days, the rule will be open to public comments. After that, the Labor Department is expected to hold a hearing and receive more comments. After that, the rule could be revised further. And it’s not clear when a final rule would go into effect—perhaps not before Obama leaves office.

An earlier Labor Department measure was derailed in 2011 by Wall Street lobbyists, who argued it would drive out advisers who work with small accounts. The new measure carves out exceptions for brokers who simply take orders for transactions. It also permits brokers to work with fiduciaries who understand the nature of their sales role.

Securities and Exchange Commission chairwoman Mary Jo White has also announced support for a fiduciary standard that would protect more individual investors beyond just those seeking help with retirement accounts. And the New York City Comptroller recently proposed a state law that would require brokers to tell clients that they are not fiduciaries.

Until those measures take effect—and even if they do—protect your retirement portfolio by following these guidelines:

Find out if you come first. Ask your adviser or prospective adviser if she is a fiduciary. A yes doesn’t guarantee ethical behavior, but it’s a good starting point, says Roper.

Then ask how the adviser will be paid. Many pros who don’t receive commissions charge a percentage of assets, typically 1%. Some advisers, however, are fiduciaries in certain situations but not all. So ask if the adviser is compensated in any other way for selling products or services. “You should understand what the total costs of the advice will be,” says Fred Reish, a benefits attorney with Drinker Biddle.

Many RIAs work with affluent clients—say, those investing at least $500,000—since larger portfolios generate larger fees. That’s one reason other investors end up with brokers, who are often paid by commission. Have a smaller portfolio? Find a planner who will charge by the hour at GarrettPlanning.com or findanadvisor.napfa.org (select “hourly financial planning services”). Your total cost might range from $500 for a basic plan to $2,500 or more for a comprehensive one.

Beware a troubled past. Any financial professional can say he puts his clients’ interests first, but his past actions might contradict that. To see whether a broker has run afoul of customers or regulators, inspect his record at brokercheck.finra.org. RIAs, who are regulated by the SEC and the states, must file a disclosure form called ADV Part 2, which details any disciplinary actions and conflicts of interest; you can look it up at adviserinfo.sec.gov.

Favor a low-cost approach. A fiduciary outlook should be reflected in an adviser’s investment choices for you—and their expense. “Before making any recommendations, your adviser should first ask how your portfolio is currently invested,” says Mercer Bullard, a securities law professor at the University of Mississippi. Your 401(k) may have low fees and good investment options, so a rollover might be a bad idea.

If the adviser is quick to suggest costly, complex investments such as variable annuities, move on. “Most investors are best off in low-cost funds,” says Bullard. And with so much at stake, you want an adviser who’s more concerned with your costs than his profits.

Read Next: Even a “Fiduciary” Financial Adviser Can Rip You Off If You Don’t Know These 3 Things

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