Consumer Advocates Push for Closing Retirement Advice Loophole
Consumer groups and public interest organizations are launching a campaign to raise awareness of changes being made to how financial planners provide advice for retirement investments.
The organizations are advocating for changes to the Retirement Advice Loophole, which allows financial advisers to put the needs of their company and their paycheck before the well-being of their client.
The loophole was created in the 1970s when employee pensions were the most common form of retirement savings. Since then, companies offering pensions have dwindled, making way for IRAs and 401(k)s, which are managed by the retiree. About $12 trillion is invested in these types of contribution accounts.
These, sometimes complicated, investments often require advice from financial advisers. Financial advisers should have – and some do – a fiduciary duty to act in the client's best interest when offering investment advice. The loophole, however, allows financial advisers to act in the best interest of their employers or paychecks, by letting them sell financial products that pay large commissions but hurt their clients with unnecessary fees, poor returns, or excessive risks.
The U.S. Department of Labor is working on a rewrite of the law that would include closing the loophole.
The partnering organizations engaged in the public awareness campaign include AARP, American Federation of State, County, and Municipal Employees (AFSCME), American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), Americans for Financial Reform, Better Markets, Consumer Federation of America, and the Pension Rights Center.
More information about the campaign and about protecting retirement investments can be found at here.