Advice abounds when you are putting money into a 401(k) savings plan. You get a bunch of informational flyers, your employer urges you to save, and may even automatically enroll you or match your contributions.
Yet when you prepare to retire, it's a different story. For one thing, you have the option to roll your 401(k) plan into an Individual Retirement Account. And not every financial professional who offers to help at that point will have your best interests in mind.
That may soon change. The Labor Department is expected to release new rules on standards for investment advice as soon as early April. The rules are likely to require all investment advisors, including broker-dealers and insurance agents, to act in investors' best interest when advising them on what to do with their 401(k) savings plans.
Currently, certain advisors may tell you to invest in a high-cost or low-performing fund even when a better option is available, as long the recommendation is deemed to be "suitable" for you based on certain broad criteria. It's also permissible if that investment nets the advisor higher commissions.
With the new conflict of interest standard applying to all advisors, however, that will no longer be possible.
The current system has proven expensive for investors, not least because many people have difficulty determining which standard their advisors are using. That confusion costs investors roughly $17 billion annually in higher fees or sub-optimal investment performance, according to an estimate by the Council of Economic Advisors.
"When you get bad advice, you are paying for it," said Cristina Martin Firvida, director of financial security and consumer affairs at AARP, the advocacy group for older Americans.