In 1975, when the U.S. Department of Labor issued a rule defining who is an investment advisor under the Employee Retirement Income Security Act, the Vietnam War had just ended, Steve Jobs was tinkering around his dad’s garage, and Angelina Jolie was barely in diapers.
To say that the world has changed since then is an understatement. In the years since, the retirement world has changed just as dramatically: the once prevalent professionally-managed defined benefit pension plans are on the decline, while do-it-yourself 401(k) plans and IRAS are ascending in popularity.
In an effort to keep up with the changing retirement landscape, the Department of Labor is trying to modernize its investment advisor fiduciary rules. By updating these rules, the agency wants to ensure that the professionals who give investment advice to millions of everyday workers and retirees in 401(k)s and IRAs do so without conflicts of interest.
Who could disagree with that?
The financial industry, of course. Many of the financial advisors who make a fortune by advising their clients to invest their retirement assets in stocks that pay the advisors a finder’s fee have launched a lobbying blitz to stop the Department of Labor from protecting the interests of workers and retirees whose retirement security depends on these funds.
The Pension Rights Center, along with AARP, the AFL-CIO, Americans for Financial Reform, and others – are opposing a bill misnamed “The Retail Investors Act.” The bill in fact that effectively stops the Department of Labor from doing its job of protecting investors.
At a recent congressional briefing, Norman Stein, PRC’s Senior Policy Advisor, spoke against the bill and described how some financial advisors “guide their clients toward investments that maximize the broker’s commissions and other compensation, regardless of whether the client might be better served by other investment options.”
Janice Winston, a Verizon retiree, described her surprise upon learning that investment advisors aren’t required to act solely in the best interests of their clients: “I thought that anyone I paid to advise me would be guided only by my best interests. This is important, because I really have no good way to evaluate whether my investments are performing well or whether I am paying too much in fees.”
If Members of the House of Representatives truly wants to protect small investors, workers and retirees, they should vote against the Retail Investor Act.
Watch the recording of the congressional staff briefing, Protecting Retirement Savings: The Case for Modernizing Advice, on PRC’s YouTube channel.
Read the Center’s letter, opposing the Retail Investors Act (H.R. 2374).