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Series I bonds, an inflation-protected and nearly risk-free asset, will pay 4.28% through October 2024, the U.S. Department of the Treasury announced Tuesday.
The latest I bond rate is down from the 5.27% yield offered since November.
Short-term investors have more competitive options for cash. But the fixed rate could still appeal to long-term investors, experts say. 

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Series I bonds will pay 4.28% annual interest from May 1 through October 2024, the U.S. Department of the Treasury announced Tuesday.
Linked to inflation, the latest I bond rate is down from the 5.27% annual rate offered since November and slightly lower than the 4.3% from May 2023.

Current I bond owners will also see their rates adjust, depending on when they bought the assets. There’s a six-month timeline for rate changes, which begins on the original purchase date.
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Despite falling rates, the I bond’s fixed-rate portion is still “very attractive” for long-term investors, said Ken Tumin, founder of DepositAccounts.com, which closely tracks these assets.

How I bond rates work

There are two parts to I bond rates — a variable- and fixed-rate portion — which the Treasury adjusts every May and November. The history of both rates is here. 
Based on inflation, the variable rate stays the same for six months after purchase, regardless of when the Treasury announces new rates. 

After the first six months, the variable yield changes to the next announced rate. For example, if you bought I bonds in September of any given year, your rates change each year on March 1 and Sept. 1, according to the Treasury. 
By comparison, the fixed rate, which is harder to predict, stays the same after purchase. Every May and November, the Treasury can adjust or keep the fixed rate the same.  

Still ‘great’ for long-term investors

Millions of investors piled into I bonds after the annual rate hit a record 9.62% in May 2022, and rates have since fallen amid cooling inflation. 
Currently, short-term savers have better options for cash. But I bonds could still appeal to long-term investors, according to Milwaukee-based certified financial planner Jeremy Keil at Keil Financial Partners.    
“The only reason you’re buying I bonds is for the fixed rate,” which is 1.3% for new purchases from May 1 through October, he said.

Long-term savers may also like the tax benefits, said Tumin. There are no state or local levies on interest and you can defer federal taxes until redemption.   
“It’s great for long-term holdings of your emergency fund,” Keil added.   
Of course, you need to consider your goals and timeline before purchasing. One of the downsides of I bonds is you can’t access the money for at least one year and there’s a three-month interest penalty if you tap the funds within five years. 
You can buy I bonds online through TreasuryDirect, with a $10,000 per calendar year limit for individuals. However, there are ways to purchase more, including $5,000 in paper I bonds via your federal tax refund.

Frequently asked questions about I bonds
1. What’s the interest rate from May 1 to Oct. 31, 2024? 4.28% annually.
2. How long will I receive 4.28%? Six months after purchase.
3. What’s the deadline to get 4.28% interest? Bonds must be issued by Oct. 31, 2024. The purchase deadline may be earlier.
4. What are the purchase limits? $10,000 per person every calendar year, plus an extra $5,000 in paper I bonds via your federal tax refund.
5. Will I owe income taxes? You’ll have to pay federal income taxes on interest earned, but no state or local tax.

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While long-term care insurance rate increases can be expected, most people are shocked by how much rates can go up over the long term.
The National Association of Insurance Commissioners has reported rate spikes as high as 500%.
For those with limited financial means, a significant premium increase can be overwhelming and devastating, often forcing people to choose between financial security and compromising their parents’ quality of life and access to quality care.

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Supporting aging parents is an extremely difficult situation that comes with both emotional and financial complications.
The cost of long-term care insurance is a prime example.

This insurance, essential for covering costs not typically included in standard health insurance or Medicare, such as nursing home stays or in-home support, can be a financial lifeline. However, it’s not without challenges, especially when faced with an unexpected premium increase.
I know this situation all too well, having purchased long-term care policies for both of my parents in 2000.
For my dad, who was 68 at the time, I purchased 5% simple inflation protection, which accrues interest only on the original benefit. By the time my dad needed in-home care starting in 2014, his daily benefit had grown from $125 to $212.50.

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Given our family history of longevity, and because my mom purchased her policy when she was a young 54 years old, we selected 5% compound inflation protection. The daily benefit with compound inflation grows quickly because the interest earns interest.
Now, with that compound inflation protection, her daily benefit has increased from $125 to $403.

But her costs have increased, too, in part because that compound inflation protection costs more. Since 2000, my mom’s long-term care insurance premium has jumped 54%, from $1,224 to $1,885 per year. Along the way, we have experienced three rate increases.

How much can long-term care insurance increase?

While rate increases can be expected, most people are shocked by how much rates can go up over the long term, specifically for policyholders who have had their policies for a decade or more. It’s not uncommon for rates to increase by 50%. However, the National Association of Insurance Commissioners has reported rate spikes as high as 500%.
For those with limited financial means, a significant premium increase can be overwhelming and devastating, often forcing people to choose between financial security and compromising their parents’ quality of life and access to quality care.
We all want what’s best for our aging parents. Here are some ways I recommend clients navigate premium increases to protect their long-term care coverage.

3 ways to handle long-term care insurance premium hikes

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A significant premium increase can threaten your or your parents’ financial stability, but so does not having the right insurance coverage. It’s a catch-22 that often leaves people feeling trapped. I don’t believe that people should be forced to choose between simply accepting the increase or dropping the policy.
The good news is that you have options that don’t result in an all-or-nothing choice.
As a certified financial planner professional, I often encourage my clients to start by exploring three options — accepting the rate increase, freezing benefits or adjusting policy terms.
1. Accepting the rate increase
In some situations, the best course of action is to do nothing. If your parents’ financial situation allows them to comfortably absorb the higher rate, accepting the premium increase can ensure continuous coverage without sacrificing any benefits.
From my personal experience, this was the best choice for my mother’s situation. Despite a 54% premium increase, we chose to accept the rate rather than settle for fewer policy benefits. I know all too well the cost of in-home care, as my dad had Parkinson’s disease for nine years and needed 24-hour care the last four months of his life.

2. Freezing the benefits
If you have financial concerns about a higher premium, you may be able to eliminate or reduce the rate increase by electing to freeze your benefits. When this happens, you agree to pause the inflation protection benefit for a predetermined time frame in exchange for a lower rate. Freezing benefits helps to keep premium costs down without losing coverage altogether. It can be a good choice for parents in their early to late 80s, especially if the premium increase exceeds 20%.
Recently, I advised one of my clients to freeze their benefits when faced with a 22% premium increase since they are in their late 70s and the cost difference wasn’t a good fit for their situation. This change allowed them to maintain the current daily benefit amount but forgo future increases, helping manage costs while still providing some coverage.

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3. Finding a middle ground
Sometimes, the full premium increase isn’t manageable, but you’re not ready to freeze benefits completely. If you’re able to accept some but not all of the premium increase, it’s best to call your insurance company to negotiate your rates.
For example, if the cost is going up 15% but you can only afford 10%, discuss it with your insurer. You could uncover alternatives that an adjusted premium might offer, like a shorter benefit period, longer elimination period or reduced daily benefit amount. However, reducing daily benefits should be a last resort because it decreases the insurance payout and can increase out-of-pocket costs for your parents’ care.

Making the best long-term care insurance decisions

Age is just a number, but so is the cost of long-term care insurance. Begin by having transparent conversations with your parents and siblings, so you can work together to ensure that everyone’s needs and concerns are met. This discussion should cover everyone’s perspectives and financial considerations, especially the needs and preferences of your aging parents.
This can be a difficult conversation to navigate.

If you’re feeling stuck weighing the long-term implications of your available options, it’s important to seek guidance from a financial professional for clarity and insight. A financial expert can go over the specifics of your situation, offer tailored advice, and even suggest alternatives you might not have considered.
In the end, the decision should balance financial foresight with the care and comfort of your loved ones.
 — By Marguerita (Rita) Cheng, a certified financial planner and the CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland. She is also a member of the CNBC Financial Advisor Council. More

Having a diversified portfolio means you should have some of your money in bonds.
Bonds can not only offer some protection against market volatility, but they also generate income.
Morningstar gives some of its top bond funds.

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Having a diversified portfolio means you should have some of your money in bonds. The assets can offer not not some protection against market volatility, but also generate income.
Yet deciding how to construct the fixed income portion of your portfolio may seem confusing, especially after the bond rout in 2022 and continued volatility last year. In October, the 10-year Treasury yield crossed 5%. Bond yields move inversely to prices, so when yields rise, prices decline.

This year, investors are closely watching the Federal Reserve to see if and when it will begin to cut interest rates.
“As the Fed pivots toward cutting rates, stock and bond returns should once again move in opposite directions, re-establishing a mix of the two as an attractive risk-return profile,” Morgan Stanley said in its 2024 bond market outlook.
However, investors shouldn’t try to time the market, said Morningstar senior analyst Mike Mulach.
“Try to have as much diversification as you can,” he said. “There will be some volatility; there’s been more volatility lately. But there will be a time when you can’t just sit in cash.”

Bonds vs. bond funds

If you want to own individual bonds, only do so with high-quality ones, said certified financial planner Chuck Failla, founder of Sovereign Financial Group.

For instance, Treasurys can be bought through the TreasuryDirect website.
“When you go into individual bonds, you have a very predetermined duration,” Failla said. Along the way, you will collect income and you get your principal back when the bond matures.
If you’re going this route, ladder the bonds — which means staggering maturities — to meet your specific time goal, he said.
That said, in general, most investors would be best served buying a diversified bond fund, said Mulach.
“It doesn’t have to be super fancy in terms of using a sector fund, but just focusing on high-quality bonds and high-quality bond funds that will traditionally provide the best diversification benefit against riskier assets, like equities, in your portfolio,” he said.

What to look for in bond funds

There are several factors to consider when investing in a bond fund.
“Narrowing your choices to the cheapest in the universe is a great place to start,” Mulach said.
Yet price alone isn’t a barometer. Investors should be aware of interest rate risk, which is the impact of interest rate changes on the asset’s underlying price. The best way to assess this is through the bond fund’s duration, Mulach said.
Then there is credit risk. The higher the quality of a bond, the less credit risk for investors.
“Those investment-grade bonds, high-quality bond portfolios tend to offer the greatest diversification benefits relative to the equities in your portfolio,” he explained.
You’ll also have to decide if you want a fund that is actively managed, which typically comes with higher fees, or a passive fund, which is tied to a specific index. Active bond funds outperformed their passive peers last year, according to Morningstar.
Because of that outperformance, Mulach generally recommends actively managed funds.
Still, it isn’t that simple. Both Mulach and Failla said it is important to look for funds that have high-quality managers.
“Look at the track record, but don’t rely on it,” Failla said. Also look at the default rate, how long the managers are tenured with the funds and what their process is for selecting assets, he added.
“You want to make sure that they have a real process in place … to mitigate the risks that are in that space,” he said. “There are a lot of good managers out there, you just have to do your homework.”
Mulach suggests sticking with intermediate-core, short-term and ultra-short term Morningstar categories. Ultra-short funds typically have durations less than one year, while short-term funds stick with one to 3.5 year durations. Intermediate-core durations typically range between 75% and 135% of the three-year average of the effective duration of the Morningstar Core Bond Index.
“Even within those categories, just mak[e] sure they’re diversified strategies, mainly investing across … investment-grade government-backed securities, corporate-debt securities and securitized-debt securities,” he said.
Here are some of Morningstar’s top actively managed bond funds.

Top Morningstar Bond Funds

Ticker
Fund
Morningstar Category
Type
30-day SEC yield
Adj. Expense Ratio

BUBSX
Baird Ultra Short Bond Fund
Ultra Short
Mutual fund
4.89%
0.40%

MINT
PIMCO Enhanced Short Maturity Active ETF
Ultra Short
ETF
5.30%
0.35%

BSBSX
Baird Short-Term Bond Fund
Short-term
Mutual fund
4.42%
0.55%

FLTB
Fidelity Limited Term Bond ETF
Short-term
ETF
5.27%
0.25%

BAGSX
Baird Aggregate Bond Fund
Intermediate-Term Core
Mutual fund
4.11%
0.55%

FBND
Fidelity Total Bond ETF
Intermediate-Term Core Plus
ETF
5.31%
0.36%

HTRB
Hartford Total Return Bond ETF
Intermediate-Term Core Plus
ETF
4.67%
0.29%

BCOSX
Baird Core Plus
Intermediate-Term Core Plus
Mutual fund
4.30%
0.55%

Source: Morningstar, Fund websites

In some cases there are managers who have success rates lower than 50%, according to Morningstar’s active/passive barometer.
“If you’re throwing a dart at the category, maybe you’re better off picking a passive strategy,” Mulach said.
For instance, the iShares Core U.S. Aggregate Bond ETF can be a great option to simply replicate that index, he said. It can also be a way to avoid any extra risk, since active mangers typically take on more risk to beat their benchmark, he said.

Stock chart icon

iShares Core U.S. Aggregate Bond ETF year to date

Failla also isn’t opposed to passive exchange-traded funds for Treasurys.
“High-quality Treasurys is a very efficient market,” he said. “You don’t need some high-powered analyst team.”
Meanwhile, if you have a higher risk tolerance, you can snag some attractive yields with lower-quality bonds. Just be aware that high-yield bonds have a greater risk of default.
Failla thinks they are a good investment right now. He sticks with actively-managed high-yield funds for his clients.
“1%, 2%, 3% of bonds in that portfolio will default, but if I have 500 of them I don’t really care,” he said. “That is where bond funds shine.”
He looks at each individual’s time horizon to determine asset allocation and reserves high-yield bonds for what they’ll need in about 10 years or more.
Lastly, keep in mind that income from bonds are taxed as income, compared to stocks, whose gains are taxed at a lower capital gains rate. For this reason, Mulach suggests keeping your bond funds in a tax-advantaged account, like an individual retirement account or 401(k). More

Women and Wealth Events
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Women are among those most reluctant to discuss money topics.
One nonprofit has launched a new AI tool to help them get their money questions answered faster.

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Most Americans consider money to be a private topic, and women are among those most reluctant to engage in financial conversations.
But not asking the questions they need help with can hold them back financially, experts say.

One women-focused nonprofit has launched a new way to help them get faster answers to their queries through the use of an online AI chatbot.
The organization, Savvy Ladies, was founded more than 20 years ago by Stacy Francis, a certified financial planner and president and CEO of Francis Financial in New York City.
After seeing her grandmother stay in an abusive situation because she lacked financial resources, Francis created the nonprofit with the goal of helping other women avoid similar situations.

The new chatbot — provided through Microsoft Copilot — allows visitors to the Savvy Ladies website to type in their financial questions and receive immediate answers curated from the website’s content written by CFPs and other financial professionals.
“We want to make sure that we are able to help anyone, any woman who has a question,” said Francis, who is also a member of CNBC’s FA Council. “This is something that she can go on literally at 3 a.m. and be able to get her question answered.”

That first engagement always closes with a prompt via the Savvy Ladies’ helpline for a one-on-one conversation with a professional who can provide advice and guidance.
“We want everyone to learn and grow in their knowledge, but still feel that they’re they can come and ask their own individual question and get matched,” said Judy Herbst, executive director of Savvy Ladies.

AI tools can’t replace financial advice

Artificial intelligence language models may play an important and evolving role in financial literacy, said Michael Roberts, the William H. Lawrence professor of finance at the Wharton School of the University of Pennsylvania.
But today’s tools are still developing and are a complement to — rather than a replacement of — our own personal financial knowledge and decision making, he said.

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“To use these tools, you have to be able to engage with them; but to be able to engage with them, you have to be able to know what questions to ask, [and] how to ask them,” Roberts said. “And you have to be able to understand the responses coming back at you.”
Due to the fast rate of progress in this space, it’s hard to forecast where these tools will be even in another year or two, Roberts said.
Individual investors are already showing signs they are starting to embrace these tools.
Investors are more likely to trust advice from generative AI tools than from social media, according to a survey released last year from the CFP Board, a professional organization representing professional financial planners.
Yet they are more likely to be comfortable acting on that advice once it has been verified by a financial planner, the results found.

Technology experts who sit on Savvy Ladies’ board hope the new chatbot will help expand the nonprofit’s reach.
“We live in a world where you scroll TikTok or you scroll Instagram and you want an instant answer,” said Julia Rodgers, CEO of Hello Prenup and a Savvy Ladies board member.
“It’s very important for nonprofits like Savvy Ladies to keep up with that so that we can continue to deploy those services to those in need,” she said.
Since Savvy Ladies launched the tool, the chat bot has received questions regarding how to establish a monthly budget, build better credit and earn more money, according to Herbst.
The nonprofit is still refining the chatbot, she said. One goal is to make its voice match the organization’s mission.
“It’s a navigator, but we want it to be a soft-spoken female voice that comes through,” Herbst said.

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The 30-year fixed rate mortgage rose to 7.17% for the week ended April 25, according to Freddie Mac data via the Federal Reserve.
While some buyers have come to terms with 7% interest rates, the volatility of rates is “really the thing that’s going to impact the market the most,” said Nicole Bachaud, a senior economist at Zillow Group.

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Rates will keep ‘buyers and sellers on their toes’

“The biggest thing when we’re looking at mortgage rates right now is volatility,” said Nicole Bachaud, a senior economist at Zillow Group.
While some buyers have come to terms with 7% interest rates, the volatility of rates is “really the thing that’s going to impact the [housing] market the most,” Bachaud said.
When rates bounce around from week to week, a buyer looking into a house one day might not be able to afford the same property the next day, she said.

The swinging movement of rates is “going to keep buyers and sellers on their toes for longer than expected,” Bachaud explained.
For example, a homebuyer hoping to secure a $400,000, 30-year fixed-rate mortgage might have gotten a rate of about 6.82% in early April, according to Freddie Mac and Fed data. That works out to a monthly mortgage payment of around $2,613. Two weeks later, rates were hovering at 7.10%. That slightly higher rate adds $75 to the monthly mortgage payment, or $27,000 over the life of the loan.
Even a 1 percentage point difference may not sound like much, but it can mean almost $200 more on a monthly mortgage payment, said Jacob Channel, a senior economist at LendingTree.
Would-be buyers are paying attention to the math. For the week ended April 19, the mortgage application demand dropped 2.7% compared with a week earlier, as average 30-year fixed-rate mortgages jumped from 7.13% to 7.24%, according to recent data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey.

The spring housing market is ‘getting back to normal’

“The spring housing market this year is somewhat getting back to normal,” Bachaud said.
Some areas are experiencing more sales with buyers getting used to the higher rates and looking for ways to make it work, she said.

Even so, more sales are expected to happen at the end of May and early June, she said.
That’s also when sellers tend to get the best prices. To that point, in 2023, homes listed in the first two weeks of June sold for 2.3% more, a $7,700 boost on a typical U.S. home, according to an earlier Zillow analysis.
“I’d say we’d probably also see a later spring season this year,” Bachaud said.

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The number of households that live above the poverty line but are barely scrapping by is ticking higher.
Currently, nearly 40 million families are defined as ALICE, which stands for Asset Limited, Income Constrained, Employed.
High inflation and higher interest rates have taken a hefty toll, and there is little relief in sight.

Over time, higher costs and sluggish wage growth have left more Americans financially vulnerable, with many known as “ALICEs.”
Nearly 40 million families, or 29% of the population, fall in the category of ALICE — Asset Limited, Income Constrained, Employed — according to United Way’s United for ALICE program, which first coined the term to refer to households earning above the poverty line but less than what’s needed to get by.

That figure doesn’t include the 37.9 million Americans who live in poverty, comprising 11.5% of the total population, according to data from the U.S. Census Bureau. 
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“ALICE is the nation’s child-care workers, home health aides and cashiers heralded during the pandemic — those working low-wage jobs, with little or no savings and one emergency from poverty,” said Stephanie Hoopes, national director at United for ALICE.

Inflation weighs on low-income households

The term ALICE “essentially describes what people in the lower middle class have seen for decades, they can just cover current needs but not easily generate a surplus to cover the cost of a home or investments like stocks or bonds,” said Columbia Business School economics professor Brett House.
“It’s an acute situation for more people now than a few years ago,” House added.

Stubborn inflation has driven many households near the breaking point, but the pain of high prices has not been shared equally.
By most measures, low-income households have been hardest hit, experts say. The lowest-paid workers spend more of their income on necessities such as food, rent and gas, which also experienced higher-than-average inflation spikes. 

“The ALICE households, in particular, have borne the brunt of inflation,” said Greg McBride, chief financial analyst at Bankrate. “Even though we’ve seen wage growth on the low- to moderate-income scale, that’s also where inflation has hit the hardest.”
Inflation has been a persistent problem since the Covid-19 pandemic when price increases soared to their highest levels since the early 1980s. The Federal Reserve responded with a series of interest rate hikes that took its benchmark rate to its highest level in more than 22 years.
The spike in interest rates caused most consumer borrowing costs to skyrocket, putting many households under pressure.

Inflation continues to prove stickier than expected, dashing hopes that the Fed will be able to cut interest rates anytime soon. Increasing inflation has also been bad news for workers, as real average hourly earnings rose just 0.6% over the past year, according to the Labor Department’s Bureau of Labor Statistics.
Recent statements by Fed Chair Jerome Powell and other policymakers also cemented the notion that rate cuts aren’t coming just yet.
That leaves ALICEs in a bind, Hoopes said. “Keeping rates high is hurting the labor market and ALICEs’ ability to have higher wages.”

In the meantime, lower-income households have fewer ways to reduce or change their spending habits and less money in their savings or investment accounts to fall back on.
To bridge the gap, some families are increasingly relying on credit cards to cover some bills. In the past year, credit card debt spiked to an all-time high, while the personal savings rate fell.
Credit card delinquency rates climbed to 3.1% at the end of 2023, the highest level in 12 years, according to Fed data.
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One of the most important conversations newlyweds will need to have is figuring out how and who will pay the bills.
The way couples approach and accomplish this task can be extremely personal and the end goal can be reached in so many ways.
Whatever method you choose, it is critical that it works for you both.

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Wedding and engagement season is right around the corner and that means many couples will embark on a path toward marriage.
One of the most important conversations newlyweds will need to have is figuring out how and who will pay the bills. The goal is to ensure the bills are being paid, especially on time, so the couple remains current with their finances and that means keeping their credit intact.

Money may not be the most exciting topic to discuss with your new partner, but it is a must. According to a recent study by the Institute for Divorce Financial Analysts, 22% of all divorces are due to money issues.  Having a plan and an active dialogue can help strengthen your bond as a couple.

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The way couples approach and accomplish this task can be extremely personal and the end goal can be reached in so many ways.
No one way is the right way, and we will explore some of the more popular ways we have seen this accomplished.

3 ways couples split bill responsibilities

Many couples find it best to address their bills like they have approached their marriage: They look to commingle their finances like they have their lives.
Taking this approach, the couple would set up a joint account for their bills where all the income they receive would be deposited. That joint account would then be used to pay their bills and fund their emergency and other savings accounts. This provides a fair amount of transparency to both members of the relationship to see how much money is coming into their account each month and where it is going.

Some couples would rather not combine their finances in the way previously described, and would prefer keeping things more separated.
We have seen couples that have separate accounts where their respective pay is deposited. The couple then will agree to divide certain household expenses for which they would be responsible.
One member may be tasked with paying the mortgage, taxes and insurance, while another may pay for the groceries, utilities and maintaining the home. Using this method can provide the same level of transparency for each spouse if that is what the couple wants, or it could also be used to keep things a bit more private.

Another method we see as financial advisors often combines some of the first two ways discussed.
In this situation, we see each person maintaining their own accounts and they each contribute a determined amount each month to a joint account. The joint account would be used to pay all the bills for their collective household. 
Usually, one member of the couple would take the lead to make sure the bills are paid and other times we see them divide this responsibility. This provides each person the ability to maintain their own accounts while giving the couple transparency around the household bills and what it costs to run it monthly.

How to make a bill plan as a couple

Bills and paying them are a necessary evil for any couple and how it gets done can be quite different from one household to another. Whatever method you choose, whether it is one outlined here or something very different, it is critical that it works for you both.
There must be an agreement, similar to so many things in a relationship, between the two people or it simply is not going to be followed.
Once that is in place, you need to ensure that it is being followed, the bills are being paid and they are on time, too.
Paying the bills on time will save you the nuisance of paying interest and late fees, which could add strain to your relationship. Another major benefit is to make sure your individual and credit as a couple is maintained or increased to the highest score possible.
Having great credit, which is helped by paying your bills on time, can have a positive effect on your financial situation.

Having a plan and sticking with it is very important. But it is also important that you check in with each other over time to confirm that the current plan is still working for you both. There may be times in your relationship, based on your situation as a couple, that you may need to adjust your approach. Be flexible and as transparent as you can as a couple, and this will only lead to enhancing your relationship.
In the end, financial planning is extremely personal, and you need to find and follow what works best for you.
— By Lawrence D. Sprung, a certified financial planner and founder/wealth advisor at Mitlin Financial Inc. More

The U.S. Labor Department issued a rule that aims to raise the legal bar for investment advice to retirement savers.
Rollovers from 401(k) plans to individual retirement accounts are a key focus of the “fiduciary” rule, attorneys said.
Almost 5.7 million people rolled money to an IRA in 2020, according to IRS data.

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A new U.S. Labor Department rule will significantly change the advice many investors receive about rolling money over from 401(k) plans to individual retirement accounts, legal experts say.
The so-called “fiduciary” rule, issued April 23, aims to raise the legal bar for brokers, financial advisors, insurance agents and others who give retirement investment advice.

Such recommendations may be tainted by conflicts of interest under the current rules, the agency says.
Rollovers are undoubtedly a “chief focus” of the regulation, said Katrina Berishaj, an attorney at Stradley Ronon Stevens & Young.
“The Department of Labor was not shy about that,” said Berishaj, co-chair of the firm’s fiduciary governance group.

Millions of investors roll over funds each year

Rollovers are common, especially for retiring investors.
They often involve moving one’s nest egg from a 401(k)-type plan to an IRA.

In 2022, Americans rolled over about $779 billion from workplace retirement plans to IRAs, according to a Council of Economic Advisers analysis. Almost 5.7 million people rolled over money to an IRA in 2020, according to most recent IRS data.
The number and value of those transactions have increased significantly as more baby boomers enter their retirement years. In 2010, for example, about 4.3 million people rolled over a total of $300 billion to IRAs, according to the IRS.

A ‘major shift’ in rollover advice

The new Labor Department rule aims to make more investment recommendations “fiduciary” in nature.
A fiduciary is a legal designation. At a high level, it requires financial professionals to give advice that puts the client first. They have an obligation to be prudent, loyal and truthful when giving advice to clients, and to charge reasonable fees, experts said.
Today, many rollover recommendations aren’t beholden to a fiduciary standard under the Employee Retirement Income Security Act, attorneys said.
Labor officials fear that exposes investors to conflicts of interest, whereby advice may not be best for the investor but earns brokers a higher commission, for example.

If the past is any indication of the future, we can anticipate millions of rollovers each year.

Katrina Berishaj
attorney at Stradley Ronon Stevens & Young

Under the current legal rules, which date to the mid-1970s, a financial agent must satisfy five prongs to be considered a fiduciary.
One of those prongs says they’re a fiduciary if they provide advice on a regular basis, attorneys said.
However, many rollover recommendations don’t happen as part of an ongoing advice relationship. Instead, it’s often a one-time occurrence, attorneys said.
That means it’s “very unusual” for a rollover recommendation today to be beholden to a fiduciary standard, Reish said.
The new Labor Department rule changes that, however.
“Under this rule, one-time investment advice to roll assets out of a plan would trigger fiduciary status under ERISA,” said Berishaj, who called the change a “major shift.”

Why rollover advice may be ‘higher-quality’

Under the new rule, advisors would generally be expected to consider factors such as alternatives to a rollover, including the pros and cons of keeping money in a 401(k) plan, Berishaj said.
For example, they’d likely compare various fees and expenses of a workplace plan vs. an IRA, as well as the services and investments available in both. They’d also provide certain disclosures to investors prior to the rollover, such as a description of the basis for that rollover recommendation, she added.
Good advisors are likely making an honest effort to do what’s best for their clients, but hopefully the Labor Department rule would “bring up the bottom to a better quality,” Reish said.

“I think the DOL’s intent is to encourage higher-quality advice, which would get people both better invested and with lower cost,” Reish said.
However, many financial companies dispute the necessity of the Labor Department rule.
For example, the regulation will “harm retirement savers and their access to the professional financial guidance they want and need,” said Susan Neely, president and CEO of the American Council of Life Insurers, an insurance industry trade group.

Additionally, the Labor Department “has chosen to ignore the significant progress made to strengthen consumer protections” over the last several years, Neely said. They include rules issued by the Securities and Exchange Commission and National Association of Insurance Commissioners.
Reish said those rules are “all less demanding than the DOL rule,” Reish said. “So, it’s a higher standard across the board.”
That’s especially true of recommendations from insurance agents to roll money from a 401(k) plan to an annuity held in an IRA, due to differences in current legal rules versus the Labor Department requirements, according to attorneys and other financial experts.
“We believe insurance agents will be most exposed to this rule, especially those who sell annuities,” Jaret Seiberg, financial services analyst for TD Cowen Washington Research Group, wrote in a recent research note.
Industry groups will likely sue to block the rule from taking effect, he said.  More