By Beth Finkel
Beware of mischief in Washington, D.C., that could continue costing hardworking New Yorkers precious retirement savings.
The U.S. Department of Labor last month finalized a rule to close a loophole in federal law that has allowed bad-acting financial professionals to put their own interests before those of their clients – a loophole that has been costing Americans as much as $17 billion a year in potential retirement savings.
But legislation to block the rule, which would take effect next April, has been introduced in Congress. Rather than helping retirement savers – especially small businesses and modest income savers – this new legislation would simply reopen the loophole and preserve the status quo.
Retirement savers need the protection of the new rule, which establishes a “best interest” standard requiring retirement plan advisers to put their clients’ best interest before their own profits. We don’t need to turn back the clock by blocking the new rule, and our congressional representatives should not be snookered into supporting legislation to do just that.
As employers continue moving toward individual account plans like 401(k)s for their employees, working Americans need to rely more and more on professional advice for how to invest their future retirement nest eggs.
Many investment professionals act responsibly. But too many don’t put clients’ interests first, and a White House analysis found the resulting bad 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.
The loophole has allowed some on Wall Street to line their own pockets 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 higher fees.
Most working Americans who are victimized don’t even realize it, since they have no way to tell how much better they could have done with sound, unconflicted investment advice.
Closing the loophole is a common-sense solution that will help put Americans in better control of their financial future, and help them to achieve their financial goals and enjoy peace of mind about their financial stability.
We need our federal lawmakers to stand firm and ensure a high standard, holding anyone who gives retirement savings advice genuinely accountable for helping everyday Americans choose the best investments for themselves, their families and their futures – and reduce their reliance on public assistance down the road.
Beth Finkel, of New York City, is state director for AARP in New York State.