By Dennis Kelleher
President and CEO of Better Markets
President Obama, joined by Sen. Elizabeth Warren, Sen. Cory Booker and other leaders, announced a very important retirement security initiative: ending conflicts of interests and hidden fees when people save for retirement. This common sense rule merely requires brokers and other financial advisers to act in their clients’ best interest rather than their own personal interests when providing retirement investment advice.
The US is facing a retirement crisis: too few people are saving for retirement and too many of those that do aren’t saving enough to live independently and comfortably in retirement. Under these circumstances, saving the most and getting the most out of those savings is absolutely essential. Otherwise too many of our seniors will live in poverty, be forced to rely on family and friends, and, inevitably, seek help from state and local governments, who will have to fill the gap between those inadequate savings and a decent standard of living in retirement.
But, individuals trying to save for retirement must confront and navigate a bewildering array of complex financial products and services marketed and sold by financial firms. As a result, most Americans who save for retirement turn to brokers and other advisers to help them make the complicated and important decisions necessary to save and invest wisely and appropriately for their retirement.
Most — if not all – workers and retirees who seek investment advice naturally and reasonably believe that all the brokers and advisers they turn to are required by law to act in their clients’ best interests. Sadly, that is wrong. Most brokers and advisers providing retirement investment advice are actually allowed by law to put their interests above the interests of their clients. That means the advisers can recommend investments that generate lucrative commissions for them, even though their clients get stuck with high fees, subpar performance, and unacceptably risky products. Making matters worse, brokers and other firms use advertisements and sales pitches that lead clients to believe that the broker is actually acting in their best interest.
The result is that billions of dollars that should be going into the clients’ retirement pockets are going into the advisers’ and brokers’ pockets every year. And those clients — who are just trying to save for retirement — have no idea this is happening.
This is due to a 40 year old loophole in the law that President Obama is determined to close. At an event attended by Better Markets, the President announced his strong support for an updated rule from the Department of Labor (DOL) that has been sent to the Office of Management and Budget (OMB) for review — a critical first step in the rulemaking process. This rule is expected to require everyone who provides retirement advice to act solely in the best interests of their clients.
The President made clear when announcing his support of this rule that all Americans saving for retirement deserve advice from professionals who are working solely in their best interest. We couldn’t agree more. People saving for retirement need that unbiased guidance from their trusted advisers, not a sales pitch from someone with conflicts of interest. It’s not just about the money. It’s about quality of life and peace of mind.
We’re not suggesting that everyone who gives retirement investment advice is taking advantage of their clients, since many advisers do act in their client’s best interest. But, because the law does not require them to do so, far too many do not. That’s why the President’s action is so important.
This action merely begins a long rulemaking process. Next, OMB should quickly review it and release it for public comment. To prevent Wall Street from killing this reform, the American people are going to have to participate in this process. They need to support this rulemaking and make sure that their elected officials stand with the President and the DOL.
To help defend the rule, Better Markets has joined with six other leading labor, retirement, and investor protection organizations — AARP, the AFL-CIO, Americans for Financial Reform, AFSCME, the Consumer Federation of America, and the Pension Rights Center. This group has created a website (saveourretirement.com) that will provide up-to-date information and resources for the public to stay current and involved.
All Americans concerned about retirement security need to join in this fight. Wall Street opponents of this critical reform will continue to try to kill or gut the rule, but at least there will then be an open, public comment period giving everyone an opportunity to express their views. Retirement security effects every single American, and the American people deserve no less.