If it’s not stopped, it could continue costing hard-working New Yorkers precious retirement savings.
Two bills that have been introduced in the House would block efforts by the U.S. Department of Labor to close a loophole in federal law that costs Americans as much as $17 billion a year in potential retirement savings by allowing bad-acting financial professionals to put their own interests before those of their clients.
These bills are dressed up as progressive efforts to create a uniform standard for financial advisers, but they would actually establish a uniform “suitability” standard that reinforces the status quo and is totally insufficient to plug the loophole.
The bills would hurt the hard-working people of New York City who are trying to get the best advice on saving for retirement. Representatives Joe Crowley and Hakeem Jeffries should not be snookered into supporting HR 4293 or HR 4294.
As employers continue moving towards 401(k) plans for their employees, working residents of New York City rely more and more on professional advice for how to invest their future retirement nest eggs.
Many investment professionals act responsibly. But according to a White House analysis, too many don’t put clients’ interests first, and the resulting bad advice costs American workers up to $17 billion in retirement savings every year – translating for some into 25 percent less in potential lifetime retirement savings, or the equivalent of running out of money five years sooner.
The Labor Department rule would hold anyone who offers retirement plan advice to a “best interest” standard. Advisers would be required to abide by this fiduciary standard and put their clients’ best interest before their own profits.
As it stands, the current loophole allows some on Wall Street to line their own pockets by recommending investments that may be too risky or carry higher fees and deliver lower returns.
For example, rolling over 401(k) savings into IRAs with higher expenses or investing IRAs in products that charge higher fees.
Most working Americans don’t even realize they’ve been victimized, since they have no way to tell how much better they could have done with sound, unconflicted investment advice. The result: Americans are losing out and Wall Street is literally making billions
Some federal lawmakers are listening to Wall Street special interests and are trying to kill the rule. But New Yorkers work hard to save for retirement and deserve financial advisers who work just as hard to protect what they’ve earned.
Closing the loophole is a common sense solution that would help put New Yorkers in better control of their financial future, and help them to achieve their financial goals and enjoy peace of mind about their financial stability.
We need congressmen Crowley and Jeffries and all our representatives to stand firm and ensure a high standard that holds anyone who gives retirement savings advice genuinely accountable for helping everyday Americans choose the best investments for themselves, their families and their futures.
We’re counting on our representatives to fight any efforts against closing the loophole, so working Americans can maximize their own financial independence in retirement and won’t have to rely on public assistance programs down the road.
Beth Finkel is New York State director for AARP.