A broad range of progressive organizations is throwing support behind the Obama administration’s effort to rein in financial advisers who market retirement funds.
Americans for Financial Reform sent a letter of thanks to Labor Secretary Thomas Perez on Wednesday signed by 26 organizations, including the American Association of Retired Persons (AARP), the AFL-CIO, the American Federation of State, County and Municipal Employees (AFSCME), and the National Association for the Advancement of Colored People (NAACP). “Updating protections for retirement savers is urgently needed and long overdue,” the letter said.
The regulations would be designed to ensure that people who get advice about how to invest in retirement funds are getting advice based on what is best for the consumer, as opposed to what is most profitable for the person giving the advice.
The move away from pensions to 401(k) and similar retirement plans has made this an increasingly critical issue. Earlier this week, Think Progress published a story about workers at the former Pacific Bell telephone company who are in litigation against a financial adviser who sold them on an investment plan that caused them to lose hundreds of thousands of dollars, not knowing that the adviser had pocketed a 7 percent commission on the funds invested with her. As the article notes, what the adviser did was “perfectly legal.”
“Tragically, because of loopholes in the current rules, the professionals they turn to for advice may be influenced by financial conflicts of interest and make recommendations that are not in the retirement investor’s best interest. Hardworking Americans lose precious savings when they receive advice to purchase investments with high fees, low returns, and excessive risks. In fact, one recent estimate put the total amount of retirement savings lost as a result of this practice at as much as $17 billion annually.”
The financial industry is already putting its lobbying machine into high gear, claiming that the imposition of rules would strip consumers of “choice” in financial products. It is a bogus argument – the choice to be defrauded is not a choice we should countenance – but the industry has already successfully pushed back against a 2011 attempt by the administration to rein in its excesses.
This is another issue where the public needs to stay alert and stand firm against a financial services industry that refuses to be constrained from putting its profits ahead of your well-being.
Robert Hiltonsmith of Demos explained why in a post published on Wednesday.
“Now, we live in a world where most workers depend on their 401(k)s or IRAs for their retirements, where the risks and costs of retirement security have been entirely shifted to workers. In this world of individualized retirement security, stronger protections are needed to protect savers’ nest eggs,” he wrote.
Demos has calculated that the high fees from bad investments steered by self-interested financial advisers meant a retirement nest egg that is $155,000 smaller at retirement for the average family.
Savers in 2013 paid an estimated $73 billion in fees on their retirement account in 2013, according to Demos. “Under the fiduciary rule, these fees would plummet, as investors would be steered away from high fee actively-managed mutual funds and annuities in which many currently invest to lower fee investments, including passively-managed index funds, translating into billions in savings and additional returns,” according to Hiltonsmith.