OPINION: Stop stealth savings stress; ensure retirement advisors put clients’ interests first
New Yorkers work hard and deserve the peace of mind that comes with knowing their future retirement nest eggs are invested soundly. But working New Yorkers — including about 1.7 million Brooklynites 25 and older — have something to keep them up at night: a loophole in the law that could be sapping their savings.
It needs to be closed.
Retirement accounts and 401(k) plans often involve complex financial decisions, and many working people rely on investment professionals for guidance. We should be able to trust our financial advisers to put our interests first. Many investment professionals do so. But this legal loophole is allowing some on Wall Street to make higher profits for themselves by taking advantage of hard-working Americans through recommendations of risky investments with high fees and low returns. Some examples: rolling over 401(k) savings into IRAs with higher expenses and investing IRAs in variable annuities that charge high fees, lock up money for years and provide no tax benefits beyond what the IRA already offers.
The result? Americans lose out and Wall Street makes billions.
According to an analysis by President Barack Obama’s policy experts, bad investment advice allowed by the loophole is costing American workers up to $17 billion in retirement savings every year. In fact, workers receiving conflicted advice could lose about 25 percent of their lifetime retirement savings, and retirees receiving conflicted advice could run out of money more than five years earlier than if they were receiving non-conflicted retirement savings advice, according to “The Effects of Conflicted Investment Advice on Retirement Savings.”
The damage done by permitting conflicted advice is real, significant and must be stopped. And most victims don’t even realize they’ve been victimized, since they have no way to tell how much better they could have done with sound, un-conflicted investment advice.
The U.S. Department of Labor is considering a new rule that would hold anyone who gives investment advice to a “best interest” standard. Retirement advisers would be required to abide by this fiduciary standard — putting their clients’ best interest before their own profits.
Unfortunately, some Wall Street special interests are lobbying Congress to try to stop this rule change. But it’s the special interests that need to change. It’s time to close this loophole and ensure a high standard that holds anyone who gives financial advice to retirement savers genuinely accountable for helping everyday Americans choose the best investments for themselves, their families and their futures — not standards that allow bad-acting brokers and bankers to enrich themselves.
New Yorkers are counting on their Congressional delegation to fight any opposition to closing the loophole now so their retirement years can truly be golden — and so they don’t have to rely on Congress for higher funding of public assistance programs they might otherwise need down the road.
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