Americans scraping and saving for retirement deserve to know their financial advisor will help them protect their future – many expect this already. Last week, the Department of Labor unveiled a strong, final conflict of interest rule to help safeguard hardworking middle class families’ retirement savings, and the positive reviews continue to pour in: this rule will enhance and strengthen the retirement security of hard-working Americans across the country.
From Experts:
John Thiel, Head of Merrill Lynch Wealth Management:
“We are pleased that Secretary Perez and the Department of Labor staff have worked to address many of the practical concerns raised during the comment period. Most important, we support a consistent, higher standard for all professionals who advise the American people on their investments. As we study the details of the final rule, we hope to continue what has been a constructive dialogue with the Department about how to implement a best interest standard effectively and efficiently for the benefit of our clients, advisors and shareholders.”
TIAA:
“Putting the customer first is a core TIAA value, and we believe adhering to a best interest standard under the Department’s new regulation is an important way to help more people build financial well-being…Based on our preliminary analysis, it appears the Department has gone a long way toward making the best interest standard the industry standard. TIAA supports this direction, and we look forward to reviewing the full rule.”
Jim Weddle, Managing Partner, Edward Jones:
“…the new rules will increase the public’s trust and confidence in what we do for them. That’s a good thing.”
LPL Financial Holdings Inc:
“…which provides brokerage services to more than 14,000 independent advisers, said it was pleased with the Labor Department’s changes to the fiduciary rule. ‘In particular, we are encouraged by the increased time frame for implementation, the ability to easily enter into the best interest contract with our existing clients, and the freedom to recommend any assets that are appropriate to help investors save for retirement,’ LPL said.”
Christopher Jones, CIO of Financial Engines, Inc.:
“From what we have heard and read and the conversations we have had with the secretary and others, I think the [Labor] Department has made sincere efforts to streamline the original rule and make it easier for the industry to accommodate to the rule and minimize the unintended consequences and cost of complying…The core elements remain focused on making sure anybody who is providing advice in a retirement context does so as a fiduciary. We think that’s an unqualified win for the public and will ultimately benefit the industry, as it realigns to be more consumer-friendly.”
Jon Stein – Founder & CEO of Betterment
“We support this rule for a lot of reasons. We’ve actually been engaged and involved with the Department of Labor and the OMB for awhile supporting this rule. It’s an unambiguous public good. This is one of the most exciting things to happen for investors in 40 years.”
Harold Evensky, Chairman of Evensky & Katz:
“My attitude is we live in the real world and while perfection would be terrific, I think substantively this is extraordinarily important and powerful…”
Financial Planning Coalition:
“The Financial Planning Coalition, a group of financial-planner organizations that has long supported an enhanced fiduciary standard, applauded the new rule and urged Congress not to dismantle it. ‘Based on our initial review, this rule, achieved through an inclusive, comprehensive review process, carefully balances needed consumer protections with preserved access to retirement advice,’ the coalition said.”
The CFA Institute:
“The DOL’s final rule appears to have addressed many industry and investor concerns by significantly revising some of its most contentious provisions while retaining its fundamental commitment to ensuring the integrity of the advice to retirement investors. In light of our earlier concerns, CFA Institute is particularly pleased to see clarifications to what educational information can be provided to investors without triggering the requirements relating to providing ‘investment advice.’ We also believe that streamlining the application of the Best Interest Contract Exemption (account opening statements, vastly reduced disclosure obligations, notifications to existing clients) goes far in responding to industry concerns about potentially burdensome compliance aspects and costs. In the end, we believe this is a balanced ‘win’ for investors and for advice providers, and one that will ultimately raise the level of market integrity.”
Robert Bilkie, President of Sigma Investment Counselors:
“Clearly, we are supportive of a uniform fiduciary standard. This raises the bar in terms of doing right by the client and as a result, may curb certain sales practices.”
Andrei Cherny, CEO, Aspiration:
“I’ve seen first-hand that the wheels of government can move slowly – especially when there are thousands of lobbyists and many millions in campaign contributions working against progress. But the new fiduciary role from the Department of Labor is a big step in the right direction. The financial industry is one of the least trusted in America – for some very good reasons. Too often, conflicts of interest lead to a ‘heads I win, tails you lose’ game where people’s very livelihoods are on the line.”
Jared Bernstein – Center on Budget and Policy Priorities, former Chief Economist and Economic Adviser to Vice President Biden:
This new rule, as I’ve written before, requires financial advisors providing advice on retirement accounts (and 401(k)’s that will ultimately get rolled over into such accounts) to put their clients’ interests ahead of their own. Boom. That’s it. Now, you may have thought that’s what happens already, and with many ethical advisors, it surely is. But before these new regs, brokers could and did nudge retirement savers to investments with higher fees or a broker’s commission that did more for the advisor than the advisee. Now, these financial advisors must meet a ‘fiduciary’ standard, meaning they ‘cannot accept compensation or payments that would create a conflict unless they qualify for an exemption that ensures the customer is protected.’…This is one of the administration’s biggest wins for middle-class people trying to do the right thing and save for their retirement.
From Consumer Groups and Advocates:
Nancy LeaMond, AARP:
“Overall, we think it’s a very good day for consumers. We know how important retirement security is to our members. They have tremendous economic anxiety and the step that is being taken today is going to relieve them of that anxiety. They can know they are getting advice that is the best for them and not for the person selling them their products.”
Barbara Roper, Consumer Federation of America:
“From our point of view, a rule that preserves the core protections but is easier for industry to implement is a win for everyone. We want financial firms to be able to operate under the best interest contract exemption. The changes that the DOL has made to make the contract easier to implement…really should address some of the industry’s biggest complaints about the workability of the rule.”
75 Civil Rights and Consumer Groups:
“While we will carefully review the details of the rule in the coming days, our initial assessment is that it will at long last require all financial professionals who provide retirement investment advice to put their clients’ best interests ahead of their own financial interests. By taking this essential step, the rule will help all Americans — many of whom are responsible for making their own decisions about how best to invest their retirement savings — keep more of their hard-earned savings so they can enjoy a more financially secure and independent retirement.
AFL-CIO:
“We applaud the Department of Labor for getting the fiduciary rule over the finish line after a long and thorough rule-making process that took into account a multitude of stakeholders’ interests… This rule is critical to promoting retirement security for working men and women. It means we will have more of our hard earned funds available for a secure and dignified retirement.”
AFSCME:
“The Fiduciary Rule ending conflicts of interest for retirement investment advice is long overdue. This is a very important step to protect Americans’ retirement savings against predatory practices that contribute to our nation’s retirement crisis, and cost hard working families $17 billion in losses every year.”
American Association for Justice:
“Too many working families have lost their hard-earned retirement savings after relying on a financial advisor who deliberately sold them poor investments more geared toward the advisor’s bottom line than the investor’s financial success. The Department of Labor rightly moved to require that financial advisors give clients advice that is in their best interest, not anyone else’s.”
Americans for Financial Reform:
“Today’s announcement is a huge victory for American workers and retirees… The rule is favored by leading groups representing retirees and workers, and by many financial professionals and firms that already adhere to a fiduciary standard. By their example, they show that it is perfectly possible to do so while profitably providing advice to ordinary retirement savers – contrary to the claims of lobbyists for those industry elements that have grown accustomed to the inflated profit opportunities of the regulatory status quo.
Better Markets:
“The DOL’s historic action today will directly help tens of millions of hardworking Americans trying to save for retirement… As a direct result, Americans will no longer lose tens of billions of dollars every year to high fees and poor returns.”
Center for American Progress:
“The share of working-age families at risk of retirement insecurity is now 52 percent—up from 31 percent in 1983. When Americans meet with financial professionals, they should be able to hold these advisers accountable for maintaining the trust that they claim to impart—instead of falling victim to uncertainty and fine print.”
Committee for the Fiduciary Standard:
“The Committee for the Fiduciary Standard commends the release of the Department of Labor Fiduciary Rule, intended to eliminate conflicts of interest that harm retirement investors… The release of the final rule is a major step toward a more secure, dignified retirement for the millions of Americans who save and invest for retirement.”
Consumer Action:
“The release of a final Department of Labor (DOL) fiduciary rule today is a huge victory for American workers and retirees against serious odds! The DOL is to be congratulated for issuing its final fiduciary rule to eliminate the conflicts of interest that expose consumers to salespeople masquerading as objective investment professionals. Conflicted advice leads to large and unnecessary costs that siphon money from Americans’ retirement savings. According to the White House Council of Economic Advisers, conflicted advice costs drains more than $17 billion dollars a year in aggregate from worker’s retirement accounts.”
Consumer Federation of America:
“While we will conduct a more detailed analysis of the rule over the coming days and weeks, our initial review indicates that the rule is a huge win for consumers. It appears that the rule properly closes the loopholes in the current rule so that financial professionals can no longer evade their obligation to serve their customers’ best interest, appropriately applies to recommendations to roll over to an IRA, which is often the time at which retirement savers have the most money at stake and are most vulnerable to being preyed upon, and has a strong, legally enforceable best interest standard backed by requirements for firms to rein in toxic and often perverse compensation practices that reward financial professionals for working against their customers’ best interests.”
Consumers Union:
“This is an important step that could help protect the retirement security of millions of Americans. The old rules were outdated, and these changes are long overdue. When you’re planning for your retirement, your adviser should be focused first on what makes sense for your finances, not theirs. Too often, some financial advisers may steer you towards investments with high fees and lower returns that benefit their bottom line, while leaving you paying a heavy price.”
Financial Planning Coalition:
“The Financial Planning Coalition applauds the Department of Labor for its commitment to American investors and retirement savers. Based on our initial review, this rule, achieved through an inclusive, comprehensive review process, carefully balances needed consumer protections with preserved access to retirement advice. The end result is a rule that will help bring millions of Americans much closer to a secure, dignified retirement. We urge Congress not to harm American investors and retirement savers by dismantling this important consumer protection.”
National Consumers League:
“While this new rule will be of substantial assistance to retirees and those near retirement, its biggest impact will likely be for young people who will need to create their own retirement savings. They need to be able to rely on their investment advisors to act in their best interests…Many might assume that this basic, yet essential standard for consumer protection -for financial professionals to act in the customers’ best interests – was already required, but that was not the case until today.”
National Council of La Raza:
“On Wednesday, the Department of Labor updated the definition of retirement investment advice and closed loopholes that permit some retirement investors to steer clients into investment products that aren’t in their best interest. Now, anyone offering individualized retirement investment advice must act under a fiduciary standard, meaning they must provide impartial advice in their client’s best interest. It is good news for Latinos and other small savers, as they are least able to absorb the shock of increased fees and decreased returns often seen with conflicted retirement investment advice.”
Pension Rights Center:
“By finalizing this long-overdue rule, DOL has taken a giant step forward toward protecting workers and retirees trying to save for their retirement,” said Karen Friedman, the Center’s executive vice president and policy director. “For too many years, a loophole in the law allowed many ‘trusted’ brokers and financial advisers to recommend investment products that enriched themselves at the expense of their clients.”
Public Citizen:
“Commonsense regulations like the fiduciary rule will ensure that all Americans can have confidence in their investment decisions and retirement savings. That’s why Public Citizen welcomes the Labor Department’s new fiduciary standard designed to protect investors from Wall Street brokers who put their own bottom lines ahead of their clients’ welfare.”
Nancy Zirkin, Executive Vice President, Leadership Conference on Civil and Human Rights:
“This common sense rule will ensure that when working Americans turn to financial professionals for help, they will get honest advice that’s in their best interest—not a self-serving sales pitch. We applaud the administration and Secretary Perez for taking this much-needed step in improving an outdated system that has cost working and middle-class families billions of dollars in retirement savings due to biased, unethical financial advice.”
In the News:
Bloomberg – Jordan Yadoo: Conflict of Interest Rule Could Save Americans Billions in Retirement
When it comes to retirement planning, it’s not just about how much you save, but with whom.
A new Labor Department rule announced Wednesday will require brokers to put clients’ interests ahead of their own when it comes to retirement investments, tightening current industry standards that can incentivize brokers to push high-fee products that prioritize their own profits.
The shift could save billions of dollars annually for investors, who increasingly hold their money in self-directed individual retirement accounts as opposed to defined benefit plans or 401(k)s, according to a separate White House Council of Economic Advisers analysis issued last year.
New York Times – Editorial: Retirement Savings Made Safer
The road to retirement will be less rocky under new rules issued this week by the Labor Department. The rules require financial advisers to act solely in a client’s best interests when giving advice and selling investments for retirement accounts. The best-interest requirement, also known as a fiduciary duty, will be a big improvement on current practice, in which many advisers are free to steer clients into high-priced strategies and products even when comparable but cheaper ones are available.
Better advice will mean better returns for investors. A report last year by the White House Council of Economic Advisers found that biased advice drained $17 billion a year from retirement accounts in excessive fees and inflated commissions. Under the new rules, which are scheduled to take effect a year from now, much of that money will remain with investors.
The Bulletin (Oregon) – Editorial: Rules for investment advisers are common sense
It’s common sense that when Americans seek investment advice for retirement, the people they pay for the advice should work for them.
Financial advisers need to be trusted partners, like your doctor or your lawyer. They should be serving their clients’ best interests.
New rules from the Labor Department are based on that common sense. The rules apply to advisers on retirement accounts and not other types of investments.
In the past, advisers only had to offer advice that was ‘suitable.’ That could mean recommending investment options with high fees for the adviser or investments that the adviser’s institution was pushing. It could make a big difference when people roll over 401(k)s into individual retirement accounts. There are trillions of dollars involved in those investments. And advisers could be steering people into options with higher fees.
The new higher standard is that the advisers must act as ‘fiduciaries’ and that they must serve their clients’ ‘best interest.’ …
… People should be able to trust the person they are paying for retirement advice. And with so many Americans saving so poorly for retirement, this should at least help those who are to keep a bit more money for themselves.
Reuters – Mark Miller: Best-interest standard is a game-changer for IRA rollovers
…predatory marketing underscores why the conflict-of-interest rule unveiled on Wednesday by the U.S. Department of Labor is so badly needed. The rule will impose fiduciary requirements on stockbrokers, requiring that they act in the best interest of clients whenever a tax-advantaged retirement account is involved (taxable retail accounts are not affected directly by the new rule).
Los Angeles Times – ICYMI: The White House just released new rules protecting retirement savers. Here’s why they’re needed.
The idea that investment advisors owe a higher duty to their clients than to their own pocketbooks is an old one, often detested by Wall Street.
So the announcement Monday from the White House that it will impose such a standard on advisors in the individual retirement account and 401(k) business may be a big step forward…
When it comes to Americans’ retirement accounts, the issue is especially urgent. Since the 1970s, Americans’ retirement resources have shifted inexorably from accounts managed by professional investment advisors — defined-benefit plans in which any investment shortfall has to be made up by the employer — to those managed by the workers themselves.
Market Watch – Robert Powell: This new conflict-of-interest rule will push ‘bad eggs’ out of the financial industry
…the clear winner…is certain to be investors and consumers. And the sky — despite claims to the contrary by those in the advice/product industry/profession — will not fall.
Forbes – Charles D. Ellis: Three Cheers For The New Rule Protecting Retirement Investors
The old, high commission system that forced poor products through has got to go, even if it causes pain to those who have been abusing Americans depending on their modest savings and hoping for secure retirements. As Labor Secretary Thomas Perez said in announcing the rule: “This is a good day for Main Street and for the middle class of America.”
Detroit Free Press – Susan Tompor: New rules to shine more light on hidden retirement fees
Retirement savers — who increasingly don’t have the security of a pension — too often have been left in the dark about the kind of money they’re handing over for commissions, advice or high-cost products. Some would argue that a major part of the financial services industry is built on hiding all those fees.
On Wednesday, the U.S. Department of Labor finalized a rule some advocates predict could save consumers tens of thousands of dollars over their lifetimes.
St. Louis Post-Dispatch – David Nicklaus: Fiduciary rule will give investors the honest advice they need
When a new Labor Department regulation takes full effect in 2018, Americans with Individual Retirement Accounts and 401(k) plans will finally get the unbiased advice they think they’ve had all along.
Under the existing rules, they weren’t always getting that. As long as an investment was broadly suitable, many investors got the product that was most profitable for the broker instead of the one that was best for them…
The evolving U.S. retirement system requires workers to make investment choices that once were handled by company pension managers. At long last, workers can be assured of the honest advice they need to make those decisions.
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