It’s gospel in some circles that government is the problem, not the solution. Yet it is possible, even today, to find clear examples of political leadership coming together to get something right.
That happened just this past month with the announcement by the Department of Labor of a rule that will make retirement investment safer and more transparent for millions of Americans.
Known as the “fiduciary standard,” the regulation makes into law changes that economists estimate will put $17 billion a year, every year, back into the pockets of retirement savers. Low-cost retirement planning is set to become the norm rather than the exception.
That’s the total cost of unnecessary commissions and fees charged by conflicted retirement advisors. They collect that money directly and thus have no serious incentive to illustrate the impact of fees on their own clients.
Yet fees can account for one-third and up to half of the gains earned in a typical retirement account. As Vanguard’s John Bogle points out, fees that seem small are really a gigantic slice of your return.
I’m proud to say that my firm, Rebalance, was front and center during the grueling process of change. My partner Scott Puritz shuttled around Washington, D.C. to many meetings, including providing personal testimony before a key Senate committee on the standard itself.
In fact, Secretary of Labor Thomas Perez took a moment to applaud the role of Rebalance during a speech announcing the rule and mentioned Puritz by name.
“Scott Puritz, he is the Managing Director of a firm that we met in the course of our outreach, called Rebalance. And they already adhere to the fiduciary standard,” Perez said at the news conference.
Secretary Perez went on to explain the concept of “brokerage refugees,” a kind of client we see a lot of at my firm. People are shocked to learn, Perez noted, that their trusted retirement advisor doesn’t already have a fiduciary obligation. But it doesn’t stop there.
“And shocked to find out the amount of leakage … leakage is a fancy term for loss … that they incurred. And this broken system allows this to happen.”
Getting on track
The answer, obviously I hope, is to drastically reduce losses by reducing fees. That’s what Rebalance does. Our fees are a fraction of the industry standard, in part thanks to a streamlined business model.
But it’s not about cheap. Rather, it’s about value. Most people get a retirement advisor when they open an account, then quickly lose touch with that person — if they ever speak at all.
That’s not giving advice. You should know your retirement advisor, build a relationship with him or her, feel that your best interest is what matters, and know that your plan is on track and achieving the goals you set.
Advice can be worth paying for, assuming it is fairly priced and has a fiduciary standard built in. It’s not that hard to do, and it’s the answer we need for a broken retirement system badly in need of repair.