By
A RETIRED mechanic and a fourth-grade teacher from my
home state, Russell and Christine Kazda, are having a tough time getting by.
While Mrs. Kazda still teaches, Mr. Kazda suffered an injury last year and
retired early after a 30-year career. Over the years, the Kazdas did what they
were supposed to do and saved for retirement. They made it clear to their
retirement advisers that they wanted to invest conservatively — then they had
to dip into their savings earlier than expected.
The Kazdas are struggling not because they didn’t save
enough but because, in their own words, they “naturally assumed” that the
financial professionals advising them “were acting in our best interests” when
urging them to transfer $172,000 of their retirement savings into investment
products falsely peddled (according to a legal claim they have filed) as
low-risk.
The Kazdas didn’t know their advisers were pocketing
almost 10 percent in commissions by aggressively selling them inappropriate
investment products. After a few years, their life savings had fallen by $125,000.
According to the White House Council of Economic
Advisers, Americans lose an estimated $17 billion in retirement savings each
year because of misleading advice of the type that the Kazdas received. And
now, the Chamber of Commerce and others that benefit under the current system
are fighting to make sure people keep losing that money.
In a new lawsuit, the chamber is seeking to prevent
the government from holding retirement advisers to the same standard as
doctors, lawyers or accountants — known as a “fiduciary” standard — which
requires people in positions of trust to always act in their client’s best
interest.
The Department of Labor
has been working since 2010 to hold everyone who provides financial retirement
advice to this standard. After multiple public comment periods and significant
consultation with industry leaders, consumer advocates and other experts, the
department published a final rule that went into effect this week but provides
the industry with a realistic transition period.
The beneficiaries of this rigged system refuse to
compromise and are working to undermine this much-needed consumer protection.
Lobbyists immediately began pushing Congress to nullify the rule.
They claim the fiduciary rule would decrease consumer
access to financial advice and make it harder for Americans to save for
retirement. But it’s bad advice — advice that lowers the value of retirement
accounts by billions each year — that truly makes it difficult for people to
save what they need for a secure retirement.
Their lobbying worked. Republican majorities in the
House and Senate pushed through a bill to block the Department of Labor’s rule.
On Wednesday, President Obama rightly vetoed it.
And now the Chamber of Commerce and other industry
groups are trying a different route. Using similar arguments they made when
lobbying Congress, they filed a last-ditch
lawsuit in United States District Court for the Northern
District of Texas last week to prevent the rule from being enforced.
Their lawsuit alleges that the final rule creates
“unwarranted burdens” for financial advisers. I almost can’t believe this even
needs to be said, but it’s not unwarranted to burden retirement advisers with a
requirement that they act in their clients’ best interest.
Industry leaders even admit it — just not in
Washington. While financial executives complained to the Department of Labor
that the rule was “immensely burdensome” and “very difficult” to comply with,
they were telling investors on Wall Street that they “don’t see it as a
significant hurdle” and that efficiently complying with the rule could provide
a competitive edge in the market.
Of course, many retirement advisers already put their
customers first. But the agents and brokers who provided retirement advice to
families like the Kazdas clearly didn’t, in part because they didn’t have to.
The fiduciary rule would
stop the hawking of substandard investment products. It is better both for the
consumers it protects from untrustworthy financial advisers and for the
financial industry as a whole. It won’t just give Americans confidence in their
advisers; it will also protect honest brokers from having to compete with
underhanded counterparts.
The Republican Congress may have been fooled by the
chamber’s duplicitous arguments that what Americans really need is access to
bad financial advice, but I’m disappointed the chamber is now wasting the
court’s time too.
If the fiduciary standard is good enough for medical
care, legal advice and accounting, it is good enough for financial retirement
advice. We don’t accept less anywhere else in commerce. Why should we accept it
from those we trust to protect our retirement savings?
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