billyerock1991
Gold Member
- Apr 24, 2012
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The Labor Department proposal, known as the fiduciary rule, would change the ethical standards by which employer-based retirement products like 401(k)s and IRAs are marketed and sold. The rule has not been updated since 1975, before 401(k)s and IRAs even existed. The Labor Department wants to broaden the definition of a fiduciary to cover all financial advisers who offer individual investment advice for a fee. Under the rule, they would be legally required to work in the best interest of their clients. For example, a fiduciary would not be able to push investment products on customers in which they have a financial stake. The agency defines the goal of the proposal as to ensure that potential conflicts of interest among advisers are not allowed to compromise the quality of investment advice that millions of American workers rely on, so they can retire with the dignity that they have worked hard to achieve.
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Currently, it is depressingly common for financial advisers, more than 80 percent of whom are not fiduciaries, to self-deal when offering advice. First off, they obtain large fees from the retirement products they sell. According to the think tank Demos, a median-income, two-earner household will pay $155,000 during their lifetime to financial advisers on average. (The lifetime gains for two-earner households from retirement accounts are around $230,000, meaning that nearly two-thirds of the profits go to the industry.) Second, non-fiduciary financial advisers can enjoy kickbacks; right now there is no rule against an adviser from a mutual fund company encouraging clients to put their money in specific funds sold by that company. In fact, thats the norm, and the adviser typically receives a commission for the sale.
Conflicts of interest like this cost retirement investors at least $1 billion a month, because the funds they get channeled into underperform the alternatives. Financial advisers also encourage rollovers into high-cost IRAs when an individual changes jobs. None of these schemes have to be disclosed to the customer, under the current standard. The National Bureau for Economic Research found in a recent study that adviser self‐interest plays an important role in generating advice that is not in the best interest of the clients.
So in the middle of a retirement crisis, when the majority of Americans already arent accumulating the savings they need to maintain their standard of living, sellers of retirement products are skimming close to $60 billion a year off the top through deceptive practices, making a bad situation even worse.
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Currently, it is depressingly common for financial advisers, more than 80 percent of whom are not fiduciaries, to self-deal when offering advice. First off, they obtain large fees from the retirement products they sell. According to the think tank Demos, a median-income, two-earner household will pay $155,000 during their lifetime to financial advisers on average. (The lifetime gains for two-earner households from retirement accounts are around $230,000, meaning that nearly two-thirds of the profits go to the industry.) Second, non-fiduciary financial advisers can enjoy kickbacks; right now there is no rule against an adviser from a mutual fund company encouraging clients to put their money in specific funds sold by that company. In fact, thats the norm, and the adviser typically receives a commission for the sale.
Conflicts of interest like this cost retirement investors at least $1 billion a month, because the funds they get channeled into underperform the alternatives. Financial advisers also encourage rollovers into high-cost IRAs when an individual changes jobs. None of these schemes have to be disclosed to the customer, under the current standard. The National Bureau for Economic Research found in a recent study that adviser self‐interest plays an important role in generating advice that is not in the best interest of the clients.
So in the middle of a retirement crisis, when the majority of Americans already arent accumulating the savings they need to maintain their standard of living, sellers of retirement products are skimming close to $60 billion a year off the top through deceptive practices, making a bad situation even worse.