Retirement Is Broken
If you have any type of retirement account, listen up, because this could affect you if it hasn’t already.
The Obama administration is currently implementing changes to the laws that govern the degree to which Wall Street financial advisors are able to gouge their clients.
“Conflicted advice,” as it’s being called, costs investors $17 billion per year as part of the $11 trillion American retirement industry. That’s right, $11 trillion. And yes, it is an industry.
The brokers who manage all of those accounts are going to receive much smaller slices of that sum once the new laws go into effect.
There’s something called the Fiduciary Standard which stipulates that an advisor must place his or her interests beneath that of the client’s. For instance: the standard would make it illegal for a broker to recommend a fund that would increase his or her compensation at the expense of the client’s investment.
As crazy as this sounds, the Fiduciary Standard currently doesn’t apply to everyone. That means Wall Street brokers can push on their unaware clients poor investments that maximize fees and, more likely than not, lack any upside. They won’t actually be giving investors the good advice they claim to provide.
Once the standard becomes law, financial advisors will be obligated to advocate the best investments based on their client’s age and income. They will be legally required to put their clients’ interests first.
And It Needs To Be Fixed
Saving for retirement in America is going to change in a big way and, when changes like these are coming, you’re bound to hear a rallying groan from the Establishment.
The Fiduciary Standard, which is unequivocally in everyone’s best interests except for the suits on Wall Street and the like, is being spun as a limit to the amount of investing options for retirees and those saving for retirement.
Wall Street is saying that choices for enrolling in a 401(k) will be lessened and that the new rules for retirement advisors will result in fewer options for retirees, higher costs for both parties, and no investing options for holders of smaller account.
Let’s take another look at that disinformation:
- Retirees will have fewer places to invest their savings but the only choices that will be excluded are the ones that carry exorbitant fees and/or little to no growth with them.
- There will be higher costs for Wall Street because its upside will be reduced. There will be higher costs for investors because the industry will probably raise rates in order to make up for its diminished income.
- And there’ll be fewer options for those with less savings in their accounts because, with the new law, Wall Street will no longer be able to make enough money off of them for taking them on as clients.
In reality, Wall Street will only have to operate under a higher legal standard and adapt to an environment with some actual accountability.
Same Crap, Different Toilet
Just like telecommunications giants Comcast Corporation (NASDAQ: CMCSA), Verizon (NYSE: VZ), and AT&T (NYSE: T) have vowed to take net neutrality proponents to court on the grounds of the legal issues that they claim it presents, Wall Street has promised to do the same with the Fiduciary Standard.
The truth is that these industries are going to miss out on money they would have otherwise made were the respective systems allowed to remain fundamentally broken.
The bottom line is that the Fiduciary Standard isn’t some complex, nuanced issue that has valid arguments on either side. It’s black and white and it should have legally applied to everyone who makes money by investing other people’s money years ago. Period.