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How the fiduciary rule works

All advisors now have to put your interests first

You may have assumed that the financial professional you've relied on to advise you on your retirement savings had your best interests at heart.

That was not always the case.

Individual investors have more than $24 trillion in retirement savings, including $7 trillion that's stashed away in Individual Retirement Accounts, or IRAs. A new rule announced Wednesday by the Department of Labor is going to change the way people get advice on how to invest that money, by holding investment professionals to what is called a "fiduciary standard."

Here are three important things you need to know:

What the change means

The Labor Department, which regulates tax-advantaged savings accounts, is bringing more investment advisors under an already existing rule known as the "fiduciary standard," which requires financial advisors to put their clients' best interests ahead of their own profits.

As of now, only financial professionals and firms registered as investment advisors with the Securities and Exchange Commission or individual states follow that rule. Brokers, insurance agents and most other financial professionals are held to a "suitability standard" which gives them significant wiggle room. That means they only need to make investment recommendations that are suitable for their clients, but not necessarily the best option.

Who's impacted?

The rule covers all financial professionals offering investment advice for retirement accounts — including 401(k)s and IRAs. Under the new rule, your advisor must follow the "fiduciary standard" in recommending investments for your traditional or Roth IRA, suggesting investments when rolling over 401(k) assets to an IRA or helping you set up a solo 401(k), SEP-IRA, or simple IRA if you're self-employed. However, an advisor recommending investments for a taxable brokerage account does not need to adhere to the rule.

What happens when

The broader definition of fiduciary will take effect in April 2017, according to the DOL. Until then, if you are not sure which standard your financial professional follows — make sure you ASK!