How Do I Know I've Been Affected by New Government Rules for Retirement Savings Plans?

By Bruce Talen, J.D., CFA
May 3, 2016

The Department of Labor rolled out a long-anticipated new rule on April 6 aimed at transforming the way financial advisors are allowed to make investment recommendations for 401(k) and Individual Retirement Accounts (IRAs). This was the first major update to the regulations governing retirement advice since 1975. Even though investors now hold more than $12 trillion in IRA and 401(k) plans, the new rule affecting those plans has many scratching their heads as to what just changed. Senior Trust Counsel Bruce Talen, J.D., CFA, breaks it all down for readers in a quick Q&A.

Commerce Trust Company
Q. The Department of Labor recently announced changes affecting my retirement saving plans. What do I really need to know?

A. Government regulations were changed so that the investment providers you use for your retirement accounts are now required by law to recommend products and services that match your particular needs and goals when they propose stocks, bonds, mutual funds, etc., for your IRA or 401(k).

Q. How will I know if they are doing a better job at recommending products and services?

A. The rule previously allowed some investment providers to propose investments that would have been considered appropriate, or "suitable," for your needs -- but at the same time these advisors might have made their recommendations influenced by commissions from specific investment companies. The new regulations address this conflict of interest and could help lower your investment costs.

Q. How much was this costing me under the old rules?

A. Some estimates say that the annual returns you could have received on retirement savings may have been decreased by as much as one full percentage point. Depending on how it's computed, that could mean as much as a $51,770 difference on an account with a $5,000 contribution each year for 30 years.* On an aggregate basis, some sources have estimated that retirement advice from conflicted financial advisors cost American middle-class families about $17 billion per year.

Q. Going forward, where am I likely to see any cost benefit of the new rules?

A. One likely scenario might be where you roll over from an old workplace plan to an IRA. Low-cost, low-fee choices will be favored now because your advisor will have to treat recommendations as any other fiduciary advisor might for a 401(k) plan. But ask your advisor for performance ratings on any new proposed investment options so you are assured you are not getting an inferior product in exchange. Remember, an advisor will be required to document why any advice he or she offers you on transferring funds from a 401(k) to an IRA is in your best interest.

Q. What do I have to do to make sure my investment advisors are following the new law?

A. You don't have to take any specific action. The new rules mandating that advisors only recommend products and services that match clients' needs and goals take effect starting April 2017. Expect more disclosure paperwork – your broker or advisor will have to document any proposal made to you, confirming the advice is right for your investment situation and not influenced by any choices based on commissions, unless disclosed.

Q. What happens if my advisor isn't living up to his or her fiduciary duty?

A. The new rule allows investors to take legal action alleging that an advisor has failed to act as a fiduciary. Industry observers believe the new rule likely will make it easier for investors to successfully bring a claim.

  • Ask your current advisor if any of your current holdings rebate a commission back to his or her firm.

  • Ask your advisor if he or she will be recommending any new investment proposals based under the new rule for your retirement account.

  • If lower-cost substitutes are presented as investment options, ask the advisor how ratings for the proposed option compare to those of the previous investment.


*Commerce calculated portfolio values at various returns for an account with a $5,000 contribution each year for 30 years. For example, if the return each year is 5%, the ending portfolio value would be $51,770 higher than for a similar account that only earned 4% per year.

Past performance is no guarantee of future results, and the opinions and other information in the investment commentary are as of May 3, 2016. This summary is intended to provide general information only and is reflective of the opinions of Commerce Trust Company Investment Policy Committee.

This material is not a recommendation of any particular security, is not based on any particular financial situation or needs, and is not intended to replace the advice of a qualified attorney, tax advisor or investment professional. Diversification does not guarantee a profit or protect against all risk.

The information in this commentary should not be construed as an individualized recommendation of any kind. Strategies discussed here in a general manner may not be appropriate for everyone.

Commerce Trust does not provide tax advice or legal advice to customers. Consult a tax specialist regarding tax implications related to any product and specific financial situations.

Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. All expressions of opinion are subject to change without notice depending upon worldwide market, economic or political conditions.



bruce talen
Bruce Talen, J.D., CFA® Senior Vice President, Director of Risk Management Commerce Trust Company
Bruce joined Commerce Trust Company in 2004 as director of risk management. He has more than 30 years of experience in the trust and investment management business in both legal and leadership roles. Bruce advises Commerce Trust on regulatory, trust administration, employee benefits and securities matters. He has oversight responsibility for the financial advisory services group, the Commerce Trust legal staff and the specialized services group. In addition, he is responsible for the risk management activities of the company and serves as the chief legal officer of Commerce Investment Advisors, a registered investment advisor. Bruce graduated from St. Olaf College in 1979 and received his juris doctorate from Washington University School of Law in St. Louis in 1983. In 2004, Bruce earned the right to use the Chartered Financial Analyst® designation. He is a member of the Missouri Bar, the Illinois Bar, the CFA Institute and the CFA Society of St. Louis.