A Moratorium on Regulations is Not the Answer; New Retirement Advice Rules are Much Needed

Donald Trump has called for a moratorium on regulations.  Considered in a vacuum, this may sound like a good – or perhaps a harmless – idea.  Regulations can be confusing and burdensome.  Considered in the context of the complicated world of consumer finance, this idea is dangerous.  Consumers – whether knowingly or not – depend on financial regulations to protect them in interactions with financial service providers, such as retirement investment advisors (more on that in a minute).  Buying a home, applying for a credit card, opening a bank account, these are just a few examples of instances in which consumers must enter the oftentimes confusing realm of consumer finance.  Absent good laws and regulations, consumers are at the mercy of their financial provider.  If consumers have the bad fortune to rely on unscrupulous providers, that experience may lead to financial ruin.

Unfortunately, consumers who are looking to save for retirement have long relied on so-called “advisors,” who today have no legal duty to act in their customers’ best interests.  In fact, depending on how the advisor gets paid, their financial interests may be in direct conflict with their customers’ interests.  According to a February 2015 study by the Council of Economic Advisers, the annual cost to consumers of conflicted advice is about $17 billion each year.  Standing alone, this figure is evidence of a problem.  Considered alongside the fact that there is a retirement crisis in this country, this figure is evidence of a public policy emergency.

According to the National Retirement Risk Index most households (52 percent) are at risk of not having enough to maintain their living standards in retirement.  According to the National Institute on Retirement Security, only 55 percent of private sector workers have access to a retirement savings plan, and the typical working-age household has saved only $3,000 for retirement.  Considering the fact that the average monthly Social Security benefit is only $1,335, millions of retirees in this country, who will outlive their savings, will be forced to skimp on food, housing, health care, and other necessities. 

But there is good news.  The U.S. Department of Labor (DOL) finalized a rule in April of 2016 that will require retirement advisors to provide advice that is in their customers’ best interest.  The rule is commonly referred to as the “fiduciary rule” because, under the rule, retirement advisors will owe a fiduciary duty to their customers.  This may not seem like a radical concept, but industry forces are pulling out all the stops to block this rule from taking effect in April of 2017, Including filing lawsuits against the DOL and introducing bills to block the rule.  Sadly, one of Illinois’ U.S. Senators, Mark Kirk, is the lead sponsor of one of these bills.

Woodstock is leading an effort to defend the fiduciary rule against these attacks, but we could use your help.  If you represent an organization that wants to join our efforts, contact me (badams@woodstockinst.org).  If you or someone you know has been a victim of conflicted or bad retirement advice by a professional advisor, let me know.  Your story may help us illustrate the need for this rule.  Contrary to Donald Trump’s suggestion, now is certainly not the time to put a moratorium on regulations.  Americans looking to save for retirement need financial advisors they can trust to act in their best interests.