The US has proposed long-expected rules that toughen the oversight of financial professionals paid to give retirement advice.

The US Department of Labor has finally unleashed a proposed rule that it says will protect 401(k) and IRA investors by mitigating the effect of conflicts of interest in the retirement investment space.

The DoL said these conflicts of interest cause annual losses of about 1 percentage point for affected investors - about $17 billion a year overall.

The proposal, which has sparked heated discussions in the financial services sector and political world, is part of what is already an extremely intense debate over the fiduciary obligations of broker-dealers (see a related article here).

Under the proposal - which was endorsed by President Obama in February - retirement advisors will be required to put their clients' best interests before their own profits and operate under a fiduciary standard, as do RIAs.

Those advisors that wish to receive payments from companies selling products they recommend and forms of compensation that "create conflicts of interest" will need to rely on one of several proposed prohibited transaction exemptions, the DoL said.

“This boils down to a very simple concept: if someone is paid to give you retirement investment advice, that person should be working in your best interest,” said Secretary of Labor Thomas Perez. “Under the proposed rule, retirement advisors can be paid in various ways, as long as they are willing to put their customers' best interest first.”

The Committee for the Fiduciary Standard noted that the share of Americans who have traditional pensions with investment decisions made by professionals and a steady monthly payout at retirement has fallen sharply.

This means that individuals are largely responsible for making their own choices about how much to save and how to invest their retirement savings today.

“Current rules allow some types of financial professionals in banks, brokerage, and insurance companies to skip fiduciary requirements and put their own sales quotas and bottom line ahead of the retirement investor’s interests,” The Committee said.

The Public Investors Arbitration Bar Association is also encouraged by the DoL fiduciary rule proposal. It said it has found that nine top US brokerage firms advertise in public as “though they are trusted fiduciaries acting in the best interest of investors,” but then “deny in non-public arbitration cases that they have any such duty to avoid conflicted advice.”

The National Association of Plan Advisors, however, described the proposal as an “attack” on many advisors earlier this year.

Indeed, “people should be protected from unfair and deceptive practices,” said Brian Graff, executive director of NAPA. “But all indications are that this rule will block Americans from working with the financial advisors and investment providers they trust simply because they offer different financial products — like annuities and mutual funds — with different fees.”

Kathleen McBride, chair of The Committee for the Fiduciary Standard, believes that fiduciary advice is "essential" to help retirement investors attain their long-term goals in 401(k) or IRA accounts.

"It’s particularly important when many investors face a critical decision if they leave a company or retire, and consider a rollover from a 401(k)-type account to an IRA,” she said.