It has taken years of effort, but this week the playing field finally was leveled for Americans saving and investing for retirement. Stock brokers now have to act in the interests of their clients, and they can no longer fail to disclose how they are paid and by whom. Hidden fees must end.
Known as the “fiduciary” standard, the rule announced in Washington is a huge step forward. Longstanding conflicts of interest in the retirement investing industry are being forced out of the shadows.
A “who’s who” of investment leaders have been calling for this decision for years, among them Vanguard Group founder John Bogle and Princeton Professor Burton Malkiel, a key member of the Investment Committee of my firm, Rebalance.
Many of those opposed to the measure tried to make the case that approval would tilt things against the small investor, cutting them off from valuable advice.
Talk about doublespeak! Sure, some firms will be moving out of the small retirement investor business, but only because they can no longer shake down those accounts for staggeringly high and, frankly, unearned fees.
Instead, stock brokers and insurance salesmen will have to abide by a fairly simple standard of behavior — put the client first and disclose all fees in plain English.
Some firms already have abandoned the retirement market. Their business model is unsustainable and always was. Meanwhile, a whole new generation of low-cost, high-efficiency retirement advisors will fill the void.
The result will be nothing but good for the actual investor at the center of it all. Instead of paying exorbitant costs and receiving next to no advice, retirement savers will get the attention they need and deserve, free of conflicts of interest and priced by a free market system.
The Department of Labor estimates that American savers lose more than $17 billion a year on conflict-ridden brokers and financial advisors. The sooner these bad actors leave the market, the better.
I am very proud of the role Dr. Malkiel has played in promoting this long overdue change in the law. My partner at Rebalance, Scott Puritz, also played a key role by taking part in a high-visibility Senate committee debate on the topic.
As the news of the ruling makes its way into the media, you are likely to hear echoes of the long-running argument against a fiduciary standard. You might even get a call from your current broker or a letter telling you that your retirement account is not “big enough” to remain in their care.
Believe me, expensive, conflicted advice is never worthwhile. You wouldn’t trust a doctor who doesn’t give you straight advice about a procedure or drug. You wouldn’t hire a lawyer who might be working both sides of the case.
And you shouldn’t rely on a retirement advisor who thinks putting your interests first is an obstacle. Luckily, the retirement advice business is rapidly coming up with highly effective, low-cost, conflict-free alternatives. It’s been a long time coming, but well worth the wait.