Capitol Hill. (Courtesy of Wikimedia Commons)
On Wednesday, more than seventy-five businessmen and women arrived to Capitol Hill to make their case to regulators and other officials. There was little coverage of the event, other than a one-sentence Politico newsletter item claiming that this lobbyist-led trip was an example of a trade group “[hitting] the hill for small investors.”
But rather than going to bat for mom-and-pop retirees or other small investors, the day-long event on the hill was actually the latest salvo in a three-year campaign by brokerage firms to block regulations that would ensure that advisers to your 401(k) work in your best financial interest, or in other words, as your fiduciary. The Financial Services Institue, a trade association for broker-dealers, organized the trip, which included representatives from Pershing, FSC Securities, TransAmerica and other industy leaders.
While many Americans rely on 401(k) plans for their retirement, few are aware that their financial advisers are often working for commissions, and have no legal obligation to have their clients’ best interests in mind. The vast majority of 401(k) advisers, around 85 percent, are not actually fiduciaries. Critics say brokers often steer small investors into funds that may not be suitable, or are burdened by an array of high fees.
Since 2010, the Labor Department has proposed rules that would broaden the definition of fiduciary to “anyone who provides investment advice for a direct or indirect fee to retirement plans or holders of an individual retirement account,” according to PBS’s Frontline. The Frontline story shows how many Americans with 401(k) plans are reaching retirement with far less money than they anticipated because they have been prodded by their advisers into funds riddled with fees and other penalties that have eaten away at their nest egg. In many cass, as a report by The Nation Institute’s John Wasjik documented, retirees are encouraged to place their savings into risky funds sold to them as “similar to a CD” in terms of safety. Many retirees who have spent much of their careers saving through their 401(k)s are now taking up jobs well into their 60s and 70s just to get by.