President Obama announced new protections for retirement savers today, stating that Americans who work hard to put away money for retirement deserve peace of mind knowing that the financial retirement advice they receive is sound. The proposed rule is good news for many hard-working low- and middle-income Americans who struggle to save for an independent and secure retirement, only to have their pockets picked by the financial professionals they turn to for advice.
Less wealthy savers have the most to gain from the new Department of Labor rule. It would require all financial professionals to put the interests of their customers first when providing retirement advice. Currently, small account holders are more likely than wealthier people to get their advice from brokers, essentially salespeople, who are legally permitted to put their firm’s bottom line ahead of maximum returns for their customers.
Because they already struggle to set aside adequate retirement savings, women and communities of color in particularly are hard hit by predatory industry practices that, according to a new report by the Council of Economic Advisers, cost retirement savers $17 billion dollars a year in lost savings.
With so much money at stake, financial firms are fighting desperately to block the policy. To make their efforts appear more respectable, they have argued their efforts are motivated not by self-interest, but by concern for smaller-dollar and minority savers—and that financial firms will only serve these groups if they remain free to profit at their expense. This is a lot like the arguments we heard from the mortgage industry a decade ago, while it steered creditworthy borrowers into predatory home loans. Hard-working Americans deserve a better deal.
Today’s announcement is an important step toward ensuring that all retirement savers—not just the wealthy few—get sound advice from financial professionals who are legally required to put the customer’s interests first.
“In America, after a lifetime of hard work, you should be able to retire with dignity and a sense of security,” said President Obama, who stressed retirement security as a vital component of our country’s economy. “The strength of our economy rests on whether hardworking families can feel secure.”
In this short video, the Department of Labor breaks down this retirement savings issue: