Saving for retirement is an enormous challenge. So is making your savings last through retirement. We need all the help we can get - and we need our financial advisors in our corner. But, as a recent White House report points out, and you may have discovered yourself, that is not always how things turn out.
Typically, brokers who offer advice on 401K, 403B, or IRA investments earn their money from commissions or from other fees when they sell mutual funds. However, brokers are technically not fiduciaries - in other words, they are not legally bound to do what's in your absolute best interest, even above their own. They are required only to guide you to "suitable" investments, where suitability is based on your risk tolerance and age.
Given an array of suitable investments, it is not surprising then that some brokers may recommend the choices that offer them the bigger commissions - not the ones that provide you with bigger returns. The White House's Council of Economic Advisors estimates that conflicts of interest of this nature can shave 1% annually off of returns, with potential cumulative losses to American retirees of up to $17 billion annually. Says Labor Secretary Tom Perez: "The corrosive power of fine print, hidden fees and conflicted advice can eat away like a chronic illness at people's hard-earned retirement savings." According to an article in last month's Bloomberg news, retirement fund holders are most likely to get bad financial advice when they are rolling over an employer-sponsored 401K plan to an IRA.
In the past, all of was of little concern to workers, most of whom had company pensions managed by someone else. Today, most people are in charge of their own retirement dollars. Americans are currently estimated to have over $11 trillion in these self-directed retirement vehicles.
Fortunately, help may be on the way. President Obama recently asked the Department of Labor to establish new rules that would compel brokers to act in the best interest of their clients when dealing with retirement accounts, just as professional money managers must. They would, in other words, be considered fiduciaries, required to put your best interests above their own. The new rules would prevent brokers and financial advisers from rolling over retirement accounts unnecessarily, or putting clients' savings into investments with high fees and low returns if better options exist.
The Department of Labor is expected to submit a draft rule to the Office of Management and Budget, after which the public will be invited to comment on the proposal. But obviously, nothing is going to change overnight. So keep reading the fine print when making a decision about where to invest your retirement funds.
Read the White House Council of Economic Advisors full report here.
Sign the AARP letter in support of the proposal ("Stop Wall Street from Draining Americans' Retirement Savings") here.
Stay abreast of the news on this topic by subscribing to this blog using the "Follow by Email" link top right, and/or subscribing to our monthly e-newsletter.
Typically, brokers who offer advice on 401K, 403B, or IRA investments earn their money from commissions or from other fees when they sell mutual funds. However, brokers are technically not fiduciaries - in other words, they are not legally bound to do what's in your absolute best interest, even above their own. They are required only to guide you to "suitable" investments, where suitability is based on your risk tolerance and age.
Given an array of suitable investments, it is not surprising then that some brokers may recommend the choices that offer them the bigger commissions - not the ones that provide you with bigger returns. The White House's Council of Economic Advisors estimates that conflicts of interest of this nature can shave 1% annually off of returns, with potential cumulative losses to American retirees of up to $17 billion annually. Says Labor Secretary Tom Perez: "The corrosive power of fine print, hidden fees and conflicted advice can eat away like a chronic illness at people's hard-earned retirement savings." According to an article in last month's Bloomberg news, retirement fund holders are most likely to get bad financial advice when they are rolling over an employer-sponsored 401K plan to an IRA.
In the past, all of was of little concern to workers, most of whom had company pensions managed by someone else. Today, most people are in charge of their own retirement dollars. Americans are currently estimated to have over $11 trillion in these self-directed retirement vehicles.
Fortunately, help may be on the way. President Obama recently asked the Department of Labor to establish new rules that would compel brokers to act in the best interest of their clients when dealing with retirement accounts, just as professional money managers must. They would, in other words, be considered fiduciaries, required to put your best interests above their own. The new rules would prevent brokers and financial advisers from rolling over retirement accounts unnecessarily, or putting clients' savings into investments with high fees and low returns if better options exist.
The Department of Labor is expected to submit a draft rule to the Office of Management and Budget, after which the public will be invited to comment on the proposal. But obviously, nothing is going to change overnight. So keep reading the fine print when making a decision about where to invest your retirement funds.
Read the White House Council of Economic Advisors full report here.
Sign the AARP letter in support of the proposal ("Stop Wall Street from Draining Americans' Retirement Savings") here.
Stay abreast of the news on this topic by subscribing to this blog using the "Follow by Email" link top right, and/or subscribing to our monthly e-newsletter.
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