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U.S. PIRG Comments on Labor's Retirement Advice Docket

Supporting "Consumer First" Fiduciary Standard
Last updated: 7/24/2015

In addition to sending over 7,000 short member comments to the Department of Labor in support of a strong rule protecting retirement savings by requiring advisors to adhere to a "consumer first" fiduciary standard, U.S. PIRG filed these detailed expert comments. The comments go into detail on the importance of a strong rule to young people, or "millennials."

Excerpt:

Current rules do not adequately protect retirement savers
Under current law, the financial professionals that retirement savers turn to for investment advice are legally allowed to make recommendations that serve their own self interest, at their client’s expense. This is because the rules that govern the provision of retirement investment advice are forty years old and do not reflect the modern financial marketplace. When the fiduciary rule under ERISA was first promulgated in 1975, the retirement landscape looked very different. At that time, defined-benefit (traditional pension) plans predominated, IRAs had just been created, and 401(k)s didn’t even exist. At that time, most consumers didn’t need personalized investment advice, because their retirement savings were being professionally managed for them. And, because their retirement savings were being managed by a pension manager, regulators in 1975 didn’t take into account how the rule would affect unsophisticated individual workers and retirees seeking advice about their retirement savings. [...]

Conflicted Advice Hurts Consumers
Because many financial professionals are not required to put their clients’ interests first, they can freely steer them into excessively high cost, low performing investments that drain their clients’ hard-earned savings and maximize their own profits. While many advisers may try to serve their clients’ interest, this issue comes down to incentives. If an adviser is paid based on the products that he sells, and selling one product makes the adviser an 8 percent commission instead of another
product that makes the adviser a 3 percent commission, it’s natural that many advisers will rationalize recommending the product with the 8 percent commission. [...]

Millennials:

Whether millennials are distrustful of advisers or ready to embrace them, the DOL fiduciary rule is the solution. That’s because the best way to increase millennials’ trust of financial advisers is to require those advisers to comply with the legal standards that traditionally accompany positions of trust. By the same token, for those who are already receiving retirement investment advice, they need the protections that the DOL’s rule will provide to ensure that any advice they receive is in
their best interests and not ridden with harmful conflicts of interest. Of all the generations, millennials have the most to gain long-term from the protections of DOL’s
conflict of interest rule. That’s because small differences in cost add up over time. For example, if a 25 year old invests $5,000 a year for 45 years, a 1 percent increase in fees and expenses could result in a decrease of the investor’s portfolio balance at retirement by approximately $500,000. [...]

Conclusion
Most moderate income Americans save for retirement in tax-advantaged retirement accounts, regardless of whether they hold securities or non-securities in those accounts. They need the protections that this rule will provide and cannot afford to wait any longer for those protections to be in place. Accordingly, we urge the DOL to finalize and implement this rule as soon as possible.

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