Despite all the attention devoted to the Labor Department’s proposal for tougher standards for financial professionals paid for retirement advice, I think they are doing a disservice to Americans by taking a “glass half-empty” approach. Regulators shouldn’t only be focusing on one side of the equation.

The real danger is the potential for individual investors to stop short of seeking desperately needed financial advice, especially when there are many benefits to be gained from enlisting educated, ethically centered advisors – not the least of which is long-term financial security.


Research shows the average do-it-yourselfer underperforms the market. Over the 30-year time period from 1984 through 2013, equity fund investors earned a paltry average annual return of 3.69% compared with the S&P 500’s average annual return of 11.11%, according to Dalbar, the investment research firm. While other factors may be at play, this discrepancy is at least partially attributable to the average investor’s behavioral biases. Instead of, as Warren Buffett says, “be fearful when others are greedy and greedy when others are fearful,” individual investors tend to act like lemmings and follow the crowd. Perhaps the greatest value advisors can provide is helping counsel investors to weather the inevitable storms of bear markets while not becoming overconfident in bull markets.

Failing to seek professional advice is also dangerous because many Americans moving into retirement have a poor grasp of the knowledge required to make good decisions. A recent survey by the American College of Financial Services found the retirement income literacy of respondents aged 60 to 75 to be quite low. In a quiz of 38 questions, less than one-in-five answered at least 60% of the questions correctly, and the average respondent had the right answers just 42% of the time – demonstrating the serious retirement income planning deficit Americans face.


It’s critical for consumers not to be wary of seeking professional financial advice. By helping clients determine an income strategy consistent with their goals, make tax efficient decisions, tie in their planning with Social Security claiming and other key issues, advisors can provide tremendous value — much more than the cost of their fees. A Journal of Retirement article, “Alpha, Beta and now Gamma,” quantified that value. Looking at just five areas of retirement income planning, the authors showed that good advice could translate into an increase in annual return on investment of 1.59%.

The most important quality of a financial professional is a commitment to a code of ethics, and that will not change with new standards of care. A mandated principles-based fiduciary standard may be admirable in theory, but it is challenging to enforce consistently and effectively.

Defining what is really in the best interest of every investor in every circumstance is a challenging task. Is best interest always lowest commission or fees? Is best interest determined by the outcome of the decisions? If so, over what period of time? In searching for a financial professional, potential clients should look for individuals who take all of those factors into account and have knowledge, experience and a strong commitment to ethics. 

It’s also important for policymakers to recognize that advisors are the leading force helping to educate Americans about financial planning. This kind of education simply won’t happen on its own. Actions that limit the ability of advisors to work with consumers can only exacerbate the retirement crisis our country is facing.


Looking at the bigger picture, we see regulatory pressure for advisors to have a broader perspective, and we see clients asking more from their advisors now than ever before. In this environment, only educated advisors who are ethically driven and reasonably compensated are in a position to provide consumers with the help they need.

While regulators may be focused only on the cost of advice, consumers should be looking at the corresponding value advice brings to them and to their families. It’s critical we get this balance right. It’s not a political issue, and it’s not a financial services industry issue. It’s an issue of financial security for all Americans, and that glass needs to be full.

Robert R. Johnson, Ph.D., CFA, is president and CEO of the American College of Financial Services. He is the co-author of several books, including the recently released, Invest With the Fed.

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