Opinion

Congress Must Reject Bills That Offer Phony Protections to Retirement Savers

As the Department of Labor’s rule to strengthen protections for retirement savers moves closer to final adoption, lobbyists for the finance sector are putting up a last ditch effort to stop the rule in its tracks.  Toward that end, they have thrown the full weight of their support behind companion House bills that purport to require all retirement investment advisers to act in their customers’ best interests, but which would instead further entrench the harmful industry practices the DOL rule is intended to cure.

This issue is vitally important for working families and retirees who struggle to afford a secure and independent retirement. For too long, the financial professionals retirement savers turn to for advice have been free to steer them into investments that are profitable for the firm and the adviser but that expose the saver to unnecessary risks, subpar performance, and excessive costs.  The result is a slow erosion of hard-earned savings for workers and retirees and windfall profits for financial firms.

The Department of Labor has proposed a rule that would address this problem by holding all financial professionals who offer retirement investment advice to a so-called fiduciary standard.  Under the DOL rule, sales-based advisers, like broker-dealers and insurance agents, could still be paid through commissions on product sales so long as they are willing to make a legally binding pledge to act in their customers’ best interests, to charge only reasonable fees, and to rein in the common industry practices that encourage and reward advice that is not in the best interests of the customer.

Requiring all financial professionals to act in the best interests of their customers is a hard concept to oppose.  After all, that’s what firms are implicitly selling when they call their salespeople “financial advisors” and market their investment sales as if they were offering objective, professional investment advice.  And that is what investors overwhelmingly expect when they turn to these “financial advisors” for assistance with the complex decisions associated with saving and investing for retirement.

Reluctant to tackle the “best interest” issue head-on, financial firms and their lobbyists have mounted a variety of phony arguments against the DOL rule.  They say the rule won’t allow firms to earn commission compensation when providing advice.  It will. They say existing regulations are adequate to protect retirement savers. They’re not.  They say their opposition to the DOL rule is based, not on their own financial interests, but on their deep concern over its potential impact on low and middle income savers. Please.

When these arguments fail to persuade, the industry has a fallback position. They say better alternatives exist that can achieve the same results as the DOL rule without as much burden on or disruption to the industry.  And that is where the “Affordable Retirement Advice Protection Act” and the “Strengthening Access to Valuable Education and Retirement Support Act” come in.

Recently marked up in committee, the bills are being touted as bipartisan, consensus-driven bills that would require all financial advisers to act in their customers’ best interests when providing retirement investment advice. In reality, however, these bills do nothing more than require firms to change a few words in the disclaimers they currently use in order to continue to avoid any best interest obligations.  Disclose that they are acting in a “sales or marketing capacity” and no best interest standard applies, depriving retirement savers of the protections when the conflicts of interest and risk to the investor are greatest.

The bills have other serious flaws.  The best interest standard they apply is weak and unenforceable.  The disclosures they require are meaningless boilerplate.  They certainly won’t force firms to abandon practices that encourage and reward harmful advice.  And, if the bills are adopted, all prospects for more meaningful reform would die.

In short, these bills don’t offer a “more workable” alternative to the DOL rule; they stifle the reforms it is meant to deliver.

Retirement savers seeking help from trusted financial advisors deserve advice they can trust, and not just a sales pitch dressed up as advice.  With Americans’ retirement security at stake, it is imperative that members of Congress recognize these bills for what they are, and oppose them strenuously if and when they are brought up for a vote.

 

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