Starting Friday, financial advisers must act in your best interest ... maybe
© Getty Images

Every year, people saving for retirement lose $17 billion because they receive conflicted advice from financial advisers — like being steered into investments that provide larger commissions for the adviser but lower returns for the saver.

Remarkably, unlike the strict requirements in place for lawyers and doctors, not all financial advisers are legally required to act in their clients’ best interest. Loopholes in regulations related to financial advice have been greatly exploited by financial advisers, who are lining their pockets at the expense of the working people who turned to them for advice. 

Luckily, those loopholes are about to close ... sort of.   

ADVERTISEMENT
Thanks to a Department of Labor's Fiduciary Rule, which was issued a little over a year ago and will be implemented Friday, all financial advisers will finally be technically required to act in the best interest of clients saving for retirement. This is a huge win for savers, but this step forward comes with a couple of glaring catches. 

 

First, while the rule’s fiduciary standard will take effect Friday, key compliance provisions built into the rule’s exemptions have been delayed until Jan. 1, 2018. Further, DOL has stated that it will not enforce the rule until Jan. 1, 2018. It goes without saying that until there is a fully-implemented and fully-enforced rule, retirement savers will continue to be harmed.

Unfortunately, it is far from certain that the rule will in fact be fully implemented and enforced on Jan. 1, 2018 as is currently planned. The administration is in the process of opening a Request for Information about the Fiduciary Rule. First, this is an enormous waste of time and taxpayer dollars. The DOL already completed a roughly six-year, exhaustive vetting process that resulted in a nearly 400-page analysis on the likely impact of the final rule.

This research incorporated feedback from four days of hearings, more than 100 stakeholder meetings, thousands of public comments, and a detailed review of the academic literature. The analysis concluded that “adviser conflicts are inflicting large, avoidable losses on retirement investors, that appropriate, strong reforms are necessary, and that compliance with this final rule and exemptions can be expected to deliver large net gains to retirement investors.”

But the administration is going forward with this wasteful exercise because it is the first, necessary step in their “review” of the rule. In other words, the Request for Information is a clear sign of what’s to come — the administration is almost surely planning to propose substantial changes to weaken the rule. 

So while it is technically true that the rule goes into effect Friday, it is not being fully implemented nor enforced, and on top of that, we can expect concerted attempts in coming months to weaken it. Weakening the rule would be a clear win for the financial industry and a clear loss for regular people saving for retirement.

In order to truly protect retirees and working people saving for retirement from predatory financial advisers, we need a fully-applicable, vigorously-enforced rule. Without it, the hard-earned savings of retirement investors in this country will continue to be at risk.

Heidi Shierholz is a senior economist and director of policy at the Economic Policy Institute, a left-leaning economic and public policy think tank. From 2014 to 2017, she served under the Obama administration as chief economist at the Department of Labor.


The views expressed by contributors are their own and not the views of The Hill.