Once upon a time, workers didn’t have to make too many decisions about saving for retirement. Companies offered decent pensions and promised those payments would arrive like clockwork.
Like most stories that begin “once upon a time,” that time is long gone. With employers no longer offering new pensions, all employees face a lot of decisions. How much do you save? Which funds do you invest in? And who is a good financial adviser to help figure it all out?
Many people assume that their financial adviser works in their best interest, but clients aren’t always Priority No. 1. Too many advisers still tilt toward their own profit over their customers’.
Shifting that paradigm proved difficult — until now.
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After years of battling Wall Street and insurance companies, the U.S. Department of Labor has released a reasonably straightforward plan that’s a huge step toward protecting investors. It requires any financial adviser or broker who handles tax-preferred retirement investments to put the client’s interests first.
That means higher-fee investments or riskier options must play second fiddle to best investments for individuals, based on their circumstances. Sometimes that “best” investment might not be the cheapest. But what matters is that the advisers keep their eyes on their clients’ pocketbooks, not their own.
This is an important example of government working to protect citizens from unscrupulous actors.
Research used by the Obama administration estimated that conflicts of interest in the way many investment professionals operate cost Americans about $17 billion a year. That’s no small change.
Plus, this isn’t a matter strictly for seniors. Younger workers who change jobs and must roll over and reinvest retirement accounts are just as in need of good advice as seniors on fixed assets.
Before you breathe a sigh of relief, some words of caution. The proposal doesn’t begin to take effect until a year from now and won’t be fully in place for two years. A lot can go wrong in that time frame.
For starters, a polarized Republican-led Congress hates any idea sprung from the Obama administration and is threatening to derail it. President Barack Obama, rightly, promised to veto any obstructionist legislation.
The threat of a lawsuit from financial powerhouses, however, is significant and could slow implementation.
And a presidential election occurs before the rule is fully in force. A Republican administration might act to undermine its predecessor’s good work.
The best defense for consumers is a good offense. And that’s not easy.
It requires everyone to be a bit of an investigator into an adviser’s background and certification. When interviewing one, demand a layman’s explanation for every investment recommendation. Full disclosure of fees is fundamental. As always, “too good to be true” investment return promises must be challenged.
So who gets conned? All sorts of investors, from the wealthy to the lower income. Remember Bernie Madoff? Lots of once-rich folks do, with regret.
With the days of guaranteed pensions short, the need for more consumer-focused protections grows. The administration listened to critics, amended its proposal and is keeping individuals’ retirement security concerns paramount.
The Department of Labor has been responsible for protecting retirement accounts in tax-preferred plans since 1974, when Congress enacted the Employee Retirement Income Security Act. In the decades since, much has changed.
New times call for new protections. The federal government is right to act. Its good work should not be undermined by lawsuits, legislation or future presidential backtracking.