Workers Need Greater Protections From Bad Investment Advice

It’s time to ensure that financial advisers are acting in their clients’ best interest

AARP

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Published September 10, 2013

AARP has fought for decades to protect workers' retirement savings from fraudulent, deceptive and misleading practices that threaten the retirement security of millions of Americans.

AARP Fiduciary Duty Report

See the full AARP Research report "Fiduciary Duty and Investment Advice: Attitudes of 401(k) and 403(b) Participants" and full-page version of the infographic pictured above.

With the shift away from traditional pensions to 401(k)-style plans, more and more people are on their own when it comes to making important decisions about their retirement savings. Since the choices can be complicated, many individuals and employers turn to investment professionals for help.

Today, workers and retirees increasingly rely on advice from people who aren't subject to federal laws requiring them to protect their clients, and who aren't required to disclose any inherent financial conflicts of interest.

AARP strongly believes that investment advice must be objective, follow sound investment principles and be based on what is in the best interest of the individual consumer. We are calling for the highest standards to apply to any investment advice.

The U.S. Department of Labor is considering ways to update and strengthen regulations to better protect American workers and their retirement nest eggs from financial conflicts of interest. Under rules governing 401(k)-type retirement plans, some providers offering advice to individual participants may earn money based on the individual's investment selections — and they do not have to disclose this fact to the client.

The consequences of conflicts of interest

Most people assume that financial professionals provide investment advice based on the best interests of the person they are advising. But that's often not the case. Unless advisers have a "fiduciary duty" — that is, a legal requirement to act in the client's best interest — they could be providing advice that is more likely designed to improve their own financial prospects than the client's.

This inherent conflict of interest can have a significant negative impact on millions of Americans whose financial security depends on their ability to save and invest successfully through workplace-based retirement plans.

The public supports new protections

In May 2013, AARP surveyed 1,425 adults age 25-plus who had money saved in a 401(k) or 403(b) plan. An overwhelming majority (93 percent) support rules to require that financial advisers representing employer plans act in the interest of the individual investor. A similar percentage (91 percent) favor rules to require that IRA providers manage their retirement savings vehicles in ways that serve the best interest of account holders. Lastly, 89 percent approve of requiring 401(k) providers to inform clients if their advice is not required to be in the client's best interest.

AARP agrees. American workers and individuals seeking investment advice deserve better. It has been more than 35 years since the question of who exactly should be considered a "fiduciary" has been updated, and much has changed in the world of retirement and investments since then. The recent financial turmoil and the loss of significant retirement savings highlight how necessary it is for investment advisers to act in the best interests of their clients.

AARP urges Congress to allow the Department of Labor to move forward in its plans to update the rules in order to provide a consistently high standard of protection that serves the best interests of American workers and their families.

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