There is a loophole in the rules that govern Wall Street brokers and financial firms that provide retirement investment advice that can drain away thousands, or even tens of thousands, of dollars of hard-earned savings from a single retirement account. Today, a coalition of senior, union and consumer groups launched a new website-SaveOurRetirement.org-to mobilize support to close the “Retirement Advice Loophole” through a new rule the U.S. Department of Labor is trying to adopt.
The way workers save for retirement has changed dramatically over the past decades. With the decline in traditional pensions, more and more workers depend on 401(k) plans and individual retirement accounts (IRAs), and they frequently seek investment advice from financial professionals. But the rule governing when that advice must be solely in the worker’s interest, free from conflicts of interest, has not been changed since 1975-and many loopholes exist.
The “Retirement Advice Loophole” allows Wall Street brokers and financial firms with major conflicts of interest to provide investment advice that serves their own interests instead of what’s best for their clients.
For example, they can sell financial products that pay large commissions but hurt their clients with unnecessary fees, poor returns or excessive risks. Millions of Americans are affected by this loophole every year without even knowing it, and it is draining away their retirement savings.
Right now, some advisers are required to put their customers’ interests first while others are not-and it is often extremely difficult for workers and retirees to know which type of adviser they are dealing with.
The Labor Department rule has been under development for some time but has not been released yet. However, it is expected to require that investment advisers have no conflict of interest that might, for example, cause them to steer their clients toward investments that earn the adviser high fees but might not be in the client’s best interest. The rule should require anyone who gives retirement investment advice to act solely in their client’s best interest-a common sense standard known as the fiduciary duty.
Of course, Wall Street and the financial industry are adamantly opposed to reforming the rules. Two years ago they lobbied hard for a House bill aimed at derailing any new Labor Department investment advice rule, and surely they will be spending big money to do the same thing in 2015.
Be sure to visit SaveOurRetirement.org to learn more and find out how you can help close the “Retirement Advice Loophole.”
The groups in the coalition are the AFL-CIO, AFSCME, AARP, Americans for Financial Reform, Better Markets, Consumer Federation of America, and the Pension Rights Center.
Photo: AFL-CIO Now blog