A battle is shaping up over the soul of your retirement account. On one side are those who say you, the individual buyer, are smart enough to navigate your own investments. 

Others fear without stronger rules to protect you, you’ll be at the mercy of advisers who put their interests ahead of yours.  That’s the rationale behind a new rule proposed by the Department of Labor (DoL) that requires strict new standards for every retirement investment counselor.  

Many see this as another government overreach that assumes we’re too dense to sensibly navigate our accounts without federal hand-holding, giving rise to the moniker “Obamacare for your 401(k).”

Then again, many who see it that way are in the finance industry and have a clear stake in government keeping its hands off.
 
The issue is that there are, in theory, two different types of financial counselors, with two distinct standards governing how they do business. 

The first, broker/dealers, must adhere to the suitability standard.  This mandates only that when they suggest an investment to you it must be essentially in line with your financial goals.  The suitability standard doesn’t require them to inform you if they’re making money, in the form of a commission, from selling you the item, or even if there might be a better deal for you.  All it requires is that the product be generally consistent with your overall goals.

The second standard, which applies to Registered Investment Advisors (RIAs), is the fiduciary standard, which mandates that such advisers must disclose all conflicts of interest, such as any commissions they receive. 

The fiduciary standard further requires that they must put your financial interests ahead of their own.  It’s not enough to disclose they’re receiving a commission from a product; they have to make certain another product wouldn’t be more appropriate, regardless of whether it nets them any profit.

Under the proposed new rule, all investment professionals who work with retirement accounts like your 401(k), whether broker, dealer or RIA, would be forced to adhere to this second, stricter ethical requirement.  Sounds great, right?

Well, as this piece by the Fisher Investment editorial staff (an RIA firm, by the way, that adheres to the fiduciary standard) points out, disclosure can be a relative term.  Investment professionals are whizzes at generating paper.  So technically the legally required disclosure of an adviser’s conflict of interest could come in the form of a giant pile of fine-printed paper almost no one reads.  Technically they told you, but do they really expect you to read all that?  Most likely not.

Furthermore, did you notice I said earlier there are “in theory” two types of financial counselors, with two different standards?  The tricky part is many counselors are dual-registered, which means under some circumstances they’re required to meet the fiduciary standard, other times only the suitability standard.  As a wise man once said, that’s a little like trying to swim in the un-chlorinated section of the pool; hard to know where the line is.

Finally, no rule can ensure competence.  Someone can be completely honest, forthcoming and ethical — and still recommend bad investments.  I think we can all agree government doesn’t have a solid track record of insuring competence.

Now Congress is poised to make the DoL push the new rule back until late 2016, possibly with a view to killing it altogether. The pressure’s already prompted both the DoL and the Securities and Exchange Commission (SEC) to extend the public comment period and schedule more meetings with stakeholders.

So whichever side you’re on, if nothing else you now have a chance to make your opinion known. Either way, we’d better hope the government doesn’t launch a new website called 401(k)Care.gov.

Trevor Gerszt is founder and CEO of Goldco Precious Metals.