Government ‘mystery shopper’ finds IRA fiduciary oversight is lacking

investmentnews.com:

Financial services professionals who act as fiduciaries for Independent Retirement Accounts could face extra scrutiny if new recommendations are implemented.

The Government Accountability Office says that IRA fiduciary oversight is “lacking” and does not adequately protect investors from potential conflicts of interest.

In a report dated July 29 but only made public this week, the GOA says that “the interests of financial professionals and retirement investors often conflict,” citing when financial professionals are paid commission from selling a product to a client, creating “risks for millions of investors with over $18 trillion dollars in retirement savings in 401(k) plans and IRAs.”

This was found in a ‘mystery shopper’ style investigation involving 75 calls by the GOA posing as potential clients, and in an analysis of 2,000 conflict disclosures.

The resulting report, titled ‘Retirement Investments: Agencies Can Better Oversee Conflicts of Interest between Fiduciaries and Investors’ also found that “mutual funds that paid financial professionals were associated with lower returns for investors.”

In 2016, the Department of Labor issued a final rule that expanded the definition of fiduciary

investment advice. That rule was vacated in 2018.

Although the DOL issued a new Final Rule in April 2024, this is narrower in scope than the 2016 rule but has been highly contentious and is facing pushback in Congress.

The GOA’s review of how conflicts are communicated highlights that the IRS has sole enforcement authority over firms and financial professionals acting as IRA fiduciaries. The IRS says that firms typically self-report prohibited transactions – any improper use of assets held in an IRA – and pay the appropriate excise