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Retirement savings need stronger protections

Rules need updating so that financial advisers put investors’ needs before their own

Published: April 14, 2015 05:30 PM

Consumers who are saving for retirement often rely on professional financial advisers to recommend how and where to invest their money. You might assume your adviser is obligated to act in your best interest. But the rules covering advice doled out for retirement savings are seriously outdated.

Under current federal standards, loopholes allow advisers to recommend investments that benefit them at the expense of their clients. You might be steered to investments with higher fees, riskier features, and lower returns because of side deals between your adviser and outside companies.

These loopholes are having a significant impact on the nest eggs of millions of Americans. On average, they result in annual losses of 1 percentage point for affected investors. That might not sound like much at first, but a 1 percentage point lower return could reduce your savings by more than a quarter over 35 years. Americans who invest in Individual Retirement Accounts are losing up to $17 billion a year because of conflicted and bad financial advice, according to a recent report by the White House Council of Economic Advisers (PDF).

Are you set for your retirement? Check our retirement planning guide.

At Consumers Union, the policy and advocacy arm of Consumer Reports, we believe the rules covering retirement advice—which haven’t been updated in four decades—should be strengthened.

The Department of Labor is now considering stronger standards that would require financial advisers who recommend investments for retirement accounts to be held to a “fiduciary standard.” Advisers would have to put the customers’ interests first.

Current standards require only that investments be “suitable” for the investor, which allows advisers to choose investments that are good for their bottom line, but not necessarily good for you.

The Department of Labor has released the proposed rule for public comment, which will lead to final rules. Consumers Union will be actively involved in this process to ensure consumers get a fair deal.

Raising the standards for financial advisers will help put an end to conflicted retirement advice that depletes your savings, and it will help you plan for a more secure retirement. Your hard-earned money should be invested in your best interest.

This feature is part of a regular series by Consumers Union, the policy and advocacy arm of Consumer Reports. The nonprofit organization advocates for product safety, financial reform, safer food, health reform, and other consumer issues in Washington, D.C., the states, and in the marketplace.

Read other installments of our Policy & Action feature.

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