Investment Advisers Could Put Personal Interests Above Clients

NJTV News — April 12, 2017

By Michael Hill

It's a little known fact among consumers, but it's costing them an estimated $17 billion a year: retirement investment advisers can put their own interests to collect commissions over the best way to help consumers save for the future.

Sen. Cory Booker shared an example with his colleagues last year: "Last year I heard from one of my constituents in Lakewood who wrote to tell me about his mother. After losing her husband, she went to seek advice from a financial adviser to help her sort out her finances and plan for her retirement. She put her trust, her livelihood in the hands of this adviser, but the conflicted advice she received ended up costing her tens of thousands of dollars."

"Retirees, as it stands now, are completely vulnerable to the priorities of the people they're going to for advice in trying to save for retirement," said Beverly Brown Ruggia, financial justice organizer for New Jersey Citizen Action.

New Jersey Citizen Action was among the consumer groups who applauded the Obama Labor Department coming up with rules to change the equation — the fiduciary rule, it's called, to help those planning for retirement to build bigger nest eggs while shrinking fees and sales commissions to advisers.

"It's a common sense conflict of interest rule," Brown Ruggia said.

But, on Feb. 3, President Trump signed an executive order delaying the rule and ordered a review. He said the rule "may significantly alter the manner in which Americans can receive financial advice, and may not be consistent with the policies of my administration."

"It's outrageous. It's absolutely outrageous. There's no reason to delay. And a delay will mean that people will continue to lose money," Brown Ruggia said.

But, the National Association of Insurance and Financial Advisors was among the trade groups encouraging a block.

"I don't think that's something that needs to be legislated. I think that this is the way folks live. This is the way we are. We have any number of checks and balances within our profession. We don't need that legislated. The folks I know overwhelmingly have their clients' best interests at heart. That's not a question," said NAIFA President Thomas Piersanti.

The trade group says investment firms advise a lot of middle income workers and the fiduciary duty rule could put them out of reach of expert advice.

"This is where these folks can have these unintended consequences where you legislate away folks who would normally have access to professional services. Because they can't afford to pay for it and the folks that are providing the services can't afford to give it. It has to be something where it's beneficial to both sides," Piersanti said.

But, the industry does have some companies that had embraced and prepared for the rule, arguing the retirement investment world is stuck in the last century.

For now, consumer advocates say those seeking retirement planning should educate themselves.

"Certainly people need to know that they're working with companies that have their interest at heart," Brown Ruggia said.

The battle over this fiduciary rule could very well wind up in court. In the meantime, the new administration has given no indication when or if it would implement it.

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