Can Best Interests Be Bad?

If you have a retirement plan at work, would you prefer that your 401(k) or 403(b) plan advisors be allowed to sell you expensive products that are probably suitable for you or that they be required to offer you the best possible investment products at the lowest possible costs?

I don’t care what you political persuasion, you should both want and deserve the best and least expensive investments in your work plan or any other investment portfolio. The White House and the U.S. Department of Labor are both working to create rules that would require that those who give investing advice to 401(k) (and other workplace retirement) plans act in the best interests of the plan participants. 

That seems like a reasonable standard. Shouldn’t your plan advisors be required to act as fiduciaries? Wall Street doesn’t think so. The big brokerage and insurance firms are fighting these proposed rules with millions of your (the investors’) dollars, claiming that a fiduciary standard would make advice too expensive. Talk about the proverbial “straw man.”

These financial firms aren’t worried about you. The idea of being forced to disclose all of the hidden fees and commissions they have been squeezing out of these plans for decades scares the daylights out of them. Can you imagine buying an annuity in your 401(k) or 403(b) if you were told, up front, that the annual expenses were somewhere between 2% and 4% per year? Would you buy that 5.75% commissioned mutual fund (with 1+% annual expenses) if you were told that there was another fund available with no commission and annual fees of less than 1%?

There are hundreds, if not thousands, or fee-only, fiduciary advisors who already manage plans for 1% or less per year using mutual funds and ETFs that charge far less than 0.5% per year. These fiduciary firms are not suffering financially.

A universal fiduciary standard for all financial advisors are way overdue. This is a first step that everyone in America (except brokers and insurance agents) should support wholeheartedly.

Read this recent Wall Street Journal article on the subject (subscription may be required).