Yes, Illinoisans should be able to trust their retirement planner to put their interests first
By BOB GALLO
Retirement accounts such as IRAs and 401(k)s often involve complex financial decisions, and many working people rely on investment professionals for guidance.
We should be able to trust our financial advisers to put our interests first. Many investment professionals do so, but there is a legal loophole that is allowing some advisers to take advantage of hard-working Illinoisans by recommending investments that may be more risky or come with higher fees and lower returns, all to make higher profits for themselves. According to one estimate, this loophole is costing American workers up to $17 billion in retirement savings every year.
Shouldn’t your financial well-being be the primary consideration of your investment adviser? Shouldn’t they have a “fiduciary duty” to you and your family? After all you have entrusted them with your hard-earned dollars.
“Fiduciary duty” may not be a familiar term to many Illinoisans — but it should be. It is a fancy way of saying that the highest standard of responsibility should apply to the financial professionals who offer you investment advice. It demands that they put your interests ahead of their own.
Most Illinoisans might assume that such a high standard would already apply to all financial professionals who give investment advice. Yet, unfortunately, that is not the case.
Rather, the rules under the Employee Retirement Income Security Act of 1975 (ERISA) that currently govern the conduct of retirement plan advisers are woefully out-of-date — written over 40 years ago when IRAs were “brand new” and 401(k) plans didn’t even exist. And under securities laws, some advisers – such as registered “investment advisers” — are subject to strict “fiduciary duty” standards, while others, such as “brokers” are not.
Under current law, a retirement advice loophole in the rules continues to allow some financial professionals to operate under a lower standard. That standard says that they must recommend investments that are merely “suitable” – a much lower standard than the “fiduciary duty” discussed above. Simply stated, the “suitability standard” allows some financial professionals to put their own interests ahead of yours. As a result, many Americans end up in investments that may carry more risk or have higher fees and lower returns – and Wall Street brokers make billions.
Of course, many financial professionals do what is right, regardless. Unfortunately, others use the loophole to take advantage of hard-working Illinoisans by recommending investments with higher costs, unnecessary risks, and/or lower returns in order to make higher commissions and fees for themselves.
The way Americans save for retirement has changed drastically over the past few decades. Thirty years ago, the typical worker had a pension through his or her job. Today, if workers have a retirement plan at all, it is likely a 401(k) plan or IRA.
Why does this matter? Because now more than ever, individuals must make the complicated decisions about financial security in retirement: what to invest in, how much, how to adjust their investments during their lifetime, and how to ensure their income lasts through their retirement years.
Many people understandably turn to a professional for help navigating the sea of retirement savings options available. However, few realize that this loophole exists, and all financial professionals are not obligated to act with your best interests in mind.
Today, we have our best chance in years to take a major step toward closing the retirement advice loophole. Earlier this year, the U.S. Department of Labor issued a proposed “conflict of interest” ERISA rule which would hold financial professionals, who give investment advice, to the “fiduciary duty” standard which requires that they put the interest of their clients first.
But the fight is not over. The release of the proposed rule simply opened a comment period and opportunity for the public to weigh in. Not surprisingly, the proposed rule is strongly opposed by Wall Street and much of the financial services industry that wants to retain the status quo. And now Congress is looking to weigh in.
You can help to close this loophole by supporting the Department of Labor’s proposed “conflict of interest” rule and letting your elected officials know you support the rule moving forward. It’s easy. Just go to the AARP website www.aarp.org/loophole. Please do it today.
You work hard and you should deserve the peace of mind of knowing your retirement nest is secure and your money is invested soundly. You should also be able to trust your financial adviser to put your interests first. It’s time to close this loophole and ensure the highest standard for all financial professionals who give retirement advice. This will help make sure that Illinoisans choose the best investments for themselves, their family, and their future.
Bob Gallo is state director for AARP in Illinois. AARP has 1.7 million members, ages 50 and older, in Illinois.