When you receive medical treatment, you know that your
doctor has taken a sworn oath to consider your best interest. The same goes for
a lawyer. But believe it or not, financial advisers operate under no such
commitment, even though they hold your precious, hard-earned nest egg in their
hands. In fact, conflicted financial advice -- where advisers put their own
interests ahead of their customers' interests -- costs Americans who are saving
for retirement some $17 billion a year. This has to change, especially as the
retirement landscape shifts and fewer Americans have the fallback of a defined
benefit pension.
That's why earlier this year, the President announced he was
taking action to enshrine a basic principle: that financial advisers should
always put their clients' best interest first. Under the current system, most
financial professionals are trying to do the right thing. But they are often allowed
to recommend the investment option that is best for their own bottom line and
not necessarily the client's portfolio through what's called a
"suitability" standard. Some firms offer their brokers perks and
bonuses -- a trip to Hawaii for example -- for meeting sales goals for
particular products. When you sit down with your financial adviser, you want
him or her thinking about your retirement security, not a tropical vacation.
This is not a case of bad people doing bad things. It is
about good people working in a structurally flawed system. The goal of our
rulemaking is to remove the perverse incentives and align the interests of
advisers and the families they're supposed to be serving.
When the Labor Department did its initial outreach, a lot of
the feedback amounted to: "Problem, what problem?" But as we have
explored the issue, there has been a growing recognition of the importance of
having an enforceable best interest standard. Some in the industry say they
support the best interest standard in principle, but that it's just too
difficult to implement -- they often say it would be "unworkable" for
financial advisers to put their clients' interest first. However, a substantial
number of advisers already operate under a fiduciary standard, have found a way
to abide by it and still do quite well for themselves.
That said, we have heard and understand the constructive
concerns about logistical challenges; as long as addressing them doesn't take
us away from our North Star -- an enforceable best interest standard -- we are
flexible on the question of how we get there. This is about providing
guardrails, not a straitjacket.
So as we move forward, we are taking into account the range
of views we heard during the robust outreach we've done to make sure we get it
right. We have built a big table and invited everyone to pull up a chair. The
proposed rule reflected extensive, regular consultation with industry,
consumers, retirement and consumer groups, civil rights organizations and
others.
Since the proposed rule was published, the Labor Department
has received some 336,000 comments on it, and we extended the comment period to
allow every voice a chance to be heard. Last month, the Department convened
four days of public hearings, and the comment period will remain open through
September 24.
There have been many constructive suggestions for
improvements, and we will consider them as the final rule is developed. Among
many other things, we have heard concerns about potential burdens associated
with the point-of-sale disclosure, data retention and the mechanics of
implementing the best interest standard, and we're committed to taking those
concerns into account. As a result of the input we're getting, the Labor
Department will be making important changes to streamline and clarify our
proposal, addressing legitimate concerns that have been brought to our
attention.
A secure retirement is one of the pillars of middle-class
life in America. We cannot let it be eroded by an outdated regulatory system,
created before 401(k)s even existed and when IRAs were in
their infancy, that allows conflicted advice to degrade and deplete people's
life savings. The Obama Administration's proposed rule is one of the most
important steps we can take to help more Americans enjoy a dignified and secure
retirement after a lifetime of hard work, and we are committed to seeing it
through.
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