New Rule: Your Financial Advisor Should Actually Work for You

By Rachel Goldfarb |

The DoL and SEC should implement their proposed changes to the ethical standards of the financial services industry that would ensure consumers get the best possible financial advice.

A long-discussed but never implemented policy change surrounding ethical standards for the financial services industry is hitting the news again. Both the Department of Labor and the Securities and Exchange Commission are considering new rules that would require stockbrokers and financial services providers to act as fiduciaries, which would make them required by law to act in the best interest of their client and to avoid conflicts of interest.

It would be nice if the people we trust to invest our money put us first, but that’s not always the case. With the exception of certified financial planners and Registered Investment Advisors, who are already fiduciaries, financial services providers are only required to steer clients into “suitable” products. The suitability standard doesn’t prevent advisors from pushing the products with the highest fees and kickbacks.  When financial advisors tie their financial success to the products they push, consumers aren’t likely to get the best advice.

A group of House Democrats recently signed on to a letter to the Department of Labor opposing this new rule. Erika Eichelberger reported that a financial industry lobbyist wrote the letter. She also noted that these 32 members of Congress, who include 28 members of the Congressional Black Caucus and 15 members of the Congressional Progressive Caucus, received $88,000 from the securities and investment industry. These members of Congress claim that the rules will limit access to low-cost investment advice in the communities they represent. Brokers agree that fiduciary status would reduce revenue to the point where they wouldn’t be able to service small accounts.

The possibility of reduced services isn’t a good enough reason to sacrifice standards. American workers aren’t saving enough for retirement as is: more than half of households have less than $25,000 in investments and savings, excluding their homes. High fee funds only make the matter worse. These households can’t afford financial services that cut into their savings. Our retirement systems have enough problems. Individuals should at least be able trust that their plans for retirement security aren’t being undermined by their advisor’s own interests.

Rachel Goldfarb is the Roosevelt Institute Communications Associate.


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