Should you trust the financial advisor calling your retirement planning shots or the political hacks who insist that you are a victim being taken for a ride? If protecting your hard-earned money from greedy financial planners is your goal, the Federal Government seems like an unlikely guardian. It hasn’t done a very good job safeguarding the nation’s finances. That won’t stop a pre-election effort to further demonize Wall Street in the name of protecting your retirement investments.
Retirement planning trust from the least trustworthy
A rule to further reign in the financial services industry and reconsider the concept of fiduciary under ERISA is being churned and rechurned prior to an August public hearing. The Labor Department has added this retirement planning conflict of interest rule to the list of “can’t wait” items.1 You might remember that “we can’t wait” is an Obama threat to take matters into his own hands (see: Is the White House Leading Up to a National Jobs Emergency?). Now we can’t wait means putting the harness on retirement planners eager to violate the trust and savings of middle class victims scraping up money for their golden years.
Why is this rule necessary? There are many reasons and they don’t have much to do with funding your retirement.
Wall Street firms are still evil moneymakers
The Wall Street label continues to be liberally applied to stir up middle class anger. Congresswoman Maxine Waters used it to discuss how we are cheated out of retirement dollars:
Today, we meet to discuss one specific way that America’s middle class is being burdened: through conflicted retirement advice from financial advisers. That is, financial advice that benefits Wall Street firms with backdoor fees and hidden payments, rather than prioritizes the best interests of our nations’ workers and retirees.2
Where did these remarks come from? A month before, the White House released nearly the same statement:
A system where Wall Street firms benefit from backdoor payments and hidden fees if they talk responsible Americans into buying bad retirement investments—with high costs and low returns—instead of recommending quality investments isn’t fair.3
Promising the middle class a secure, government-sponsored retirement from Social Security that any prudent investor knows doesn’t exist isn’t fair, either. Apparently some Americans believe it, because they have used Social Security as an excuse to not save for the future (see: No Government Conspiracy, No Jobs, No Retirement Security).
How many people will this new conflict of interest rule rescue? It won’t help anyone who isn’t worried about saving.
No conflict if you don’t have any retirement savings
You can’t be robbed by your retirement planner if you aren’t saving any money. That means lots of Americans don’t have much to worry about. A press release from the Board of Governors of the Federal Reserve System discussed how concerned we are about saving for retirement:
Thirty-one percent of non-retired respondents reported having no retirement savings or pension, including 19 percent of those ages 55 to 64. Additionally, almost half of adults were not actively thinking about financial planning for retirement, with 24 percent saying they had given only a little thought to financial planning for their retirement and another 25 percent saying they had done no planning at all.4
The focus of the new rule is 401(k)s and IRAs, but most retirement-bound Americans with the insight to be concerned about hidden fees know that a company-sponsored savings plan isn’t enough. For those of us who have decided to put even more away, whether by voluntary contributions to company plans or our own side investments, does the retirement planning services industry view us as America’s middle class victims, captive suckers less important than profit? The answer is yes and no.
People before profit isn’t how this works
The proposed rule wants to turn your financial adviser into a fiduciary who puts your interests first. The left has refused to divest itself of its fundamental public distrust of anything that builds wealth, but that’s what the financial services industry does. It builds wealth for investors and for itself.
The recession proved how few safe investments there are, including the always-reliable house you live in. When the stock market tanks, IRAs and 401(k)s go with it. Even fail safe money market accounts can’t be considered safe investments because the return has become so low they are little more than savings stuffed under a mattress. Gradually implementing a system where the burden for losses will be shifted to financial advisors who will be increasingly denied their right to make a living by offering valuable advice suits Democratic rhetoric just fine, so this rule is best viewed as another step, not the final solution.
People before profit isn’t how any successful industry works. What retirement alternatives has the government offered? Social Security is mandatory for the masses, a soon-to-be risky entitlement that is running out of money. Workers who land government jobs might be promised pensions that, in some states, are underfunded and jeopardized by bad financial planning by state and municipal governments. No matter what laws are passed, fiduciary responsibility is not going to stick to anything overseen by any level of government.
Conflict of interest? Look inward, Democrats.
Is it wrong to suggest that safeguarding your retirement planning is a pre-election calculation because demonizing the financial industry worked before? Democrats determined to play the Wall Street card by warning us about retirement planning conflicts of interest should take a look at their own motives. How much that we hear between now and November 2016 will be a conflict of interest between the lust for power and political office and what Americans can be persuaded to believe is in their own interest? Persuading us to invest for retirement is certainly in the country’s interest. Ironically, urging more savings with the promise of conflict-free retirement planning might be how the middle class discovers that Democrats weren’t entirely honest about the promise of Social Security.
UPDATE December 29, 2016: With Obama on the out and the stock market surging towards 20,000 maybe the middle class won’t need so much help salvaging their retirements, after all.