The Providence Journal (R.I.), May 28:

New rules requiring financial advisers to put their clients’ interests first should be a solid gain for consumers. While many investors might have assumed that their advisers were doing this all along, it was not necessarily so. Under the current standard, advisers only have to recommend “suitable” investments. That means they can peddle products on which they receive a high commission but that may cost the client more than something comparable or better.

The new rules, issued last month by the Labor Department, specifically take aim at retirement savings. Expected to take effect beginning next spring, they will govern the handling of 401(k) and individual retirement accounts (IRAs). Importantly, rollovers will finally be covered. The new so-called fiduciary standard will not altogether bar commissions, but brokers will have to disclose their interests.

A staggering amount of money is at stake. Americans have parked more than $7 trillion in IRAs, and nearly as much in 401(k)s. That far outstrips the amount held in traditional pensions. Yet, relying on a growing body of academic research, the Obama administration estimates that savers lose $17 billion a year to conflicts of interest and excessive fees.

Not surprisingly, banks, mutual fund companies and insurers lobbied heavily against the fiduciary rule, which has been six years in the making. In response, the Labor Department made some modifications. Among them: it reduced restrictions on the types of investment products that can be sold; scrapped penalties on advisers who push their company’s own mutual funds; and exempted advisers to businesses with less than $50 million in 401(k)s.

Overall, the new rule should encourage a shift to lower-cost investments, and away from high-fee or high-risk funds. Critics complain that the new rules will be hard to comply with, especially for smaller firms. But the “suitability” rules were already complex, arguably more so.

Others warn that advisers will stop bothering with small accounts. But many large firms already snub these accounts. Some have begun providing online services to guide investors. (Fidelity recently launched such a program, charging an annual percentage fee.) These alternatives may prove just as effective, at a fraction of the cost. And in theory, certainly, they are better than dishonest advisers.

The advantages of the new fiduciary standard far outweigh any drawbacks. Most Americans have not saved enough for retirement, and need to hang onto as much of their savings as possible. As traditional pensions disappear, and workers become increasingly responsible for their own savings, the need for protections only grows.

It is no secret that Americans are heading for retirement in larger numbers than ever. The more their savings fall short, the more taxpayers will be under pressure to come to the rescue. Making the system safer benefits everyone.