Another day, another dollar for retirement advice rip-offs

Immediately on the heels of President Trump’s address to Congress — in which the president pledged to protect American workers — the Trump administration is moving forward on a raw deal for American retirees.

On Thursday, in response to an executive order signed by Trump in February, the U.S. Department of Labor made clear its plan to delay — and likely eventually abandon — its landmark rule governing retirement advice.

The rule, commonly referred to as the fiduciary rule, has a simple, commonsense objective: it requires financial advisers to act in the best interest of their clients. For four decades, savers and retirees haven’t had this assurance. Instead, they have been subject to expensive, inappropriate, and self-dealing financial advice.

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Delaying the fiduciary rule means that workers and retirees will lose out on hundreds of millions of dollars. Even the Labor Department projects that the proposed 60-day delay could cost investors as much as $890 million over 10 years as they are victimized by financial advisors during the delay period and these effects are compounded over time. Astoundingly, given the supposed desire to inject more cost benefit analysis into rulemaking, the extensively researched benefits of the rule are being ignored as the Administration seeks to delay and overturn it.

 

It appears that consideration of costs and benefits is only called for when it can be used as a barrier to public protections. When it stands in the way of deregulating Wall Street, it is cast aside.

The problem of conflicted financial advice goes back to the 1970s, when loopholes in regulations began allowing investment and insurance brokers to call themselves financial advisers, pitch products that are expensive or inappropriate, and yet claim that they are merely salespeople. In effect, while we expect professionals in other fields — such as doctors, lawyers, and engineers — to do what’s best for us and hold them accountable when they don’t, existing law gives a free pass to the individuals helping us prepare for our golden years.

And while 401(k)s didn’t even exist when these older regulations were written — and individual retirement accounts (IRAs) were in their infancy — now most Americans are on their own to plan for retirement. Not surprisingly, workers seek out financial advice to help them navigate complex decisions, and expect it to be advice directed by their best interest.

Unfortunately, that’s oftentimes not what investors receive. Conflicted advice costs savers and retirees at least $17 billion per year in higher fees, lower returns, and improper advice. For instance, former federal employees, including veterans, were convinced by their advisers to take money out of their federal Thrift Savings Plan for private retirement options that cost at least 20 times as much.

Meanwhile, as their clients fared poorly, advisers were rewarded. A recent investigation by Sen. Elizabeth WarrenElizabeth Ann WarrenOvernight Regulation: Net neutrality supporters predict tough court battle | Watchdog to investigate EPA chief's meeting with industry group | Ex-Volkswagen exec gets 7 years for emissions cheating Overnight Tech: Net neutrality supporters predict tough court fight | Warren backs bid to block AT&T, Time Warner merger | NC county refuses to pay ransom to hackers Avalanche of Democratic senators say Franken should resign MORE’s (D-Mass.) office found that in return for meeting sales quotas on certain pricey insurance products, advisers could receive not only cash bonuses, but also free Caribbean cruises.

Investing experts from Vanguard founder Jack Bogle to Warren Buffett have sounded alarm bells about expensive advice that, at best, eats into savers’ returns through high fees and, at worst, leads to truly horrific consequences. Workers who spent their adult lives building a small nest egg, like Ruby H. of Philadelphia, were pitched on investments by so-called professionals that left them largely penniless.

In response to these abuses — and Congress’ inattention to them — the Department of Labor spent six years reviewing the evidence and writing a rule. It scrapped its first attempt in 2011 after public criticism. It met with countless stakeholders. And after releasing a new proposal in 2015, the agency spent a year receiving public comments, holding four days of public hearings, and meeting with industry and advocates to find a workable solution. Even by Washington standards, the issue has been studied to death.

No magic wand can justify turning the tide back toward expensive, conflicted advice. If anything, delaying the rule will only create more uncertainty for business, requiring that companies adjust their compliance strategies again after already preparing for the rule to take effect. The public, too, has come to expect more from its financial advisers.

It makes no sense for the Labor Department to delay and study the rule again — the Department acknowledges in its own proposal that delaying the rule will cost investors far more than companies may save in compliance costs. The only reason to delay is political: it buys Congress and the administration more time to side with Wall Street and try to kill the rule entirely, instead of protecting the working families who depend on their retirement savings — and their retirement advisers — to work for them.

President Trump has repeatedly pledged to put American workers first. If that has any truth, he would not side with Wall Street’s bid to kill a rule helping ordinary Americans save for retirement.

Joe Valenti is Director of Consumer Finance at the Center for American Progress. He holds a Master’s in public policy from Georgetown University, and was previously a Hamilton Fellow at the U.S. Treasury Department, where he served as a research analyst with the Community Development Financial Institutions Fund and New Markets Tax Credit Program.

Marcus Stanley is Director of Policy at Americans for Financial Reform. He holds a Ph.D. in public policy from Harvard University, and previously worked as an advisor to former U.S. Senator Barbara BoxerBarbara Levy BoxerBarbara Boxer recounts harassment on Capitol Hill: ‘The entire audience started laughing’ 100 years of the Blue Slip courtesy Four more lawmakers say they’ve been sexually harassed by colleagues in Congress MORE, as a Senior Economist at the U.S. Joint Economic Committee, and as an Assistant Professor of Economics at Case Western Reserve University.


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