By Bill Armbruster
What if, years from now, you learn that you lost out on a quarter of your potential retirement savings because of a bum steer by a self-dealing financial adviser? Or if you run out of money in retirement and discover you could have had five more years of savings if you’d had sound advice?
These aren’t just hypotheticals. Millions of working Americans are now at risk because of a loophole in federal law that governs retirement plan advice.
The loophole allows some on Wall Street to make higher profits by recommending investments that may be too risky or carry higher fees and deliver lower returns - for example, rolling over 401(k) savings into IRAs with higher expenses or investing IRAs in products that charge high fees, lock up money for years and provide no tax benefits beyond what the IRA already offers.
Americans are losing out and Wall Street is literally making billions. The loophole needs to be closed.
Most of us aren’t financial experts, and we 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 according to a White House analysis, too many don’t put our interests first, and bad investment advice costs American workers up to $17 billion in retirement savings every year – translating for some into 25 percent less in potential lifetime retirement savings or the equivalent of running out of money five years sooner.
Most people don’t even realize they’ve been victimized, since they have no way to tell how much better they could have done with sound, unconflicted investment advice.
The good news is the U.S. Department of Labor is developing a new rule that would hold anyone who offers retirement plan advice to a “best interest” standard. Advisers would be required to abide by this fiduciary standard and put their clients’ best interest before their own profits.
The bad news is some Wall Street special interests are lobbying Congress to kill this rule – and the House and Senate are where the battle may be decided.
We need our representatives to stand firm and ensure a high standard that holds anyone who gives retirement savings advice genuinely accountable for helping everyday Americans choose the best investments for themselves, their families and their futures.
We’re counting on our congressional delegation to fight any opposition to closing the loophole so Americans’ retirement years can truly be golden – and so we don’t have to rely on Congress for higher funding of public assistance programs we might otherwise need down the road.
Bill Armbruster is associate state director of AARP for Western New York and lives in Monroe County.