USW Vice President Fred Redmond and progressive talk show host Leslie Marshall this week discussed a new rule governing financial advisors’ treatment of retirement funds, requiring them to prioritize their customers’ interests.
The U.S. Department of Labor, which announced the new law last week, estimates that dubious brokers and market managers cost consumers $17 billion each year by steering them into accounts that maximized their own commissions at the expense of retirees.
Ordinary workers, who have been pushed out of the types of defined benefit pension plans that offered them security in the past, don’t always fully understand their investment options. Many turn to professionals for guidance in mapping out their retirements.
“They assume that the individuals and the firms investing their money are operating under some sort of ethical or legal standards the same way a family doctor would, someone who is obliged to provide the very best service and give out the very best advice that they can,” said Redmond. “But these brokers are required generally only to recommend suitable investments, which means, for example, they can push an expensive mutual fund that pays a higher commission to them where an identical cheaper fund would have been an equal or better alternative.”
“That’s why this law is so critical because there’s so much work and money caught up into these funds,” said Redmond. “People expect to retire in dignity. And so much has been lost because of bad money managers.”
The financial industry has lobbied heavily against these new rules and will likely challenge them in court. Getting accurate reporting mechanisms in place and overseeing enforcement will also be difficult.
Without a diligent secretary of labor, Redmond said, these rules could fall by the wayside. “I just don’t feel comfortable that Donald Trump or [Ted] Cruz would appoint a secretary of labor who would really follow through and enforce this sort of regulation.”
“That’s why this election is so important,” said Redmond.
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