Too often Americans planning for retirement receive conflicted advice from brokers and advisors who put their interests ahead of their clients, critics charge.
One of the most prominent critics, President Obama, renewed his call for stronger rules to protect investors saving for retirement from conflicts of interest, announcing a new push to expand access to retirement plans.
In remarks at the White House Conference on Aging, Obama voiced support again for rules being crafted by the Department of Labor to impose fiduciary responsibilities on advisors working with retirement plans and investors.
The agency's fiduciary proposal, which has come under fire from leading industry groups and many members of Congress, carries the goal of "cracking down on conflicts of interest in retirement advice," Obama explains, arguing that the rules are needed to ensure that investors saving for retirement "get a fair deal."
"The goal here is to put an end to Wall Street brokers who benefit from backdoor payments or hidden fees at the expense of their clients. If they are advising you on how to save your money, they should be looking out for you -- not for somebody who's selling a product that may not be best for you," Obama says.
"And for the many brokers out there who are doing the right thing, this rule levels the playing field for them and their customers," he adds. "The notion here is, is we want to make sure responsibility is rewarded and not exploited. So there's a consumer protection element to this whole thing."
Additionally, Obama announced a new initiative that aims to encourage savings for Americans without access to a retirement plan through their employer.
The administration has been calling for a federal program that would provide automatic enrollment in an IRA for the roughly 30 million American workers without an employer-sponsored plan. Obama chided Congress for failing to take up those proposals, but noted that several states have been considering the measure, and, to encourage those efforts, he is asking the Labor Department to develop a rule proposal that would provide a framework for states to act on their own to set up retirement savings programs.
Monday's conference followed a series of events administration officials have been holding around the country to focus issues affecting seniors. Those meetings have helped shape a number of other initiatives the administration is planning to roll out in the coming months, including efforts to train more prosecutors specializing in elder abuse cases.
In framing the retirement challenge, Obama cited some of the prevailing conditions that have exacerbated the issue, including an aging population, longer lifespans and the shift toward the defined-contribution plan that puts the onus of saving and planning for retirement on the individual.
He spoke of the importance of shoring up "bedrock" social programs like Medicare, Medicaid and Social Security, while also touting the impact his signature health-care law has had in driving down the costs of drugs and treatment. But more needs to be done to encourage Americans to save for their own retirement, he and others have argued, and to ensure that the advice they receive is in their best interest, as the Labor Department is proposing with its fiduciary rule.
Many prominent representatives of the brokerage industry have been lobbying against the rule, contending that they have no problem with a best-interest advice standard, but fear that the mechanics of implementing and complying with the rule could make commonplace and harmless business practices unworkable. The result, those groups argue, is that scores of advisors will cut off service to the retirement market, leaving millions of low- and middle-income investors without advice -- just the segment of the population backers of the rule say are most at risk under the current system.
Groups such as the Financial Services Institute have been shopping their message around Capitol Hill, working to gin up opposition to the Labor Department proposal with a set of talking points warning that investors would lose access to their advisors under the rule, and that the exemption provided under the rules is too narrow and prescriptive.
The Labor Department is accepting comments on the rule over the next two weeks, and plans to hold a public hearing on the issue in August, to be followed by another comment period.
Labor Secretary Thomas Perez already been summoned to Capitol Hill to defend the proposal, and has insisted that the department remains open to feedback about the fiduciary regulation, including industry criticism.
Backers of the rule maintain that much of that criticism boils down to scare tactics on the part of an industry that is simply trying to avoid stronger regulations that would imperil a business model built on conflicts of interest.
In a panel discussion following Obama's remarks, Robin Diamonte, chief investment officer at United Technologies, stressed the importance of investor education as workers change jobs or retire. Too often, she says, employees don't realize that they can remain in their former employer's 401(k) plan. Quite often, doing so might be the best option for the investors, but they wouldn't know it by the aggressive pitch some advisors make for rolling over those plans into IRAs that might include heavy fees -- just the sort of scenario the Labor Department says it is trying to address with its fiduciary proposal.
"Many employers allow their participants to stay in their savings plan after retirement, but unfortunately, employees don't know that. They think they need to leave the plan and they need to move their assets, and also, in some circumstances, there's aggressive marketing urging them to do so. And once they leave their 401(k) plan, it's an irreversible decision," Diamonte says. "So once they're out, they may find themselves vulnerable to conflicted investment advice and recommendations that are not in their best interest."
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