April 5, 2016
Fiduciary Rule Would Stop Financial Advisers From Misleading Americans Saving for Retirement
Statement of Bartlett Naylor, Financial Policy Advocate, Public Citizen’s Congress Watch Division
Note: On Wednesday, the U.S. Department of Labor is expected to finalize and announce its long-awaited fiduciary rule, which requires financial advisers to prioritize client interests over their own financial interests.
We’ve seen what happens when we let Wall Street play by its own rules. Commonsense regulations like the fiduciary rule will ensure that all Americans can have confidence in their investment decisions and retirement savings. That’s why Public Citizen welcomes the Labor Department’s new fiduciary standard designed to protect investors from Wall Street brokers who put their own bottom lines ahead of their clients’ welfare. The rule applies only to IRAs and 401(k) plans, which receive tax advantages.
Most investors rely on advice from a broker, a financial planner or an adviser to help them navigate the complex and opaque process of investing. This leaves investors extremely vulnerable to exploitation. Investors lose an estimated $17 billion every year in hidden fees and sales commissions that do nothing but line the pockets of unscrupulous advisers, according to a report from the White House Council of Economic Advisers.
Over time, these hidden fees and commissions combine with second-rate investments to leave aging workers with significantly less money for retirement than they might otherwise have. The rule would require advisers to IRAs and 401(k) plans to put the interests of their customers ahead of their own concerns about a commission.
Wall Street has argued that the hidden fees and commissions are necessary to serve lower-income investors. In effect, they’re saying, “If we can’t scam them a little, we’ll ignore them altogether.” This deceptive mentality is exactly why a new rule is needed. Americans who are trying to save for retirement should be able to count on sound financial advice.