Feds seek to protect 401(k)s from broker fees

Labor Dept. to hold hearing on conflicts of interest

The Department of Labor will hold a public hearing this week on a proposed rule it says will shield millions of Americans from conflicts of interest on the part of advisers who guide them in saving for retirement.

The proposed rule would require that any financial adviser being compensated for giving advice on investments in 401(k)s and IRAs put their client’s best interest before their own.

The hearing, which runs Mon- day through Thursday, marks the latest step in what has been a nearly five-year journey to enact a rule that would mark the most significant change regarding retirement investment advice in 40 years.

But the debate over the potential regulation rages on. Supporters say it provides vital protection for Americans who currently lose roughly $17 billion a year to conflicts of interest by advisers more interested in their own profits than their clients’ financial futures. Critics argue the proposal is cumbersome and will ultimately hurt the middle-class investors it’s intended to protect, and may lead to them having a harder time finding professional guidance as advisers focus on higher-wealth individuals and shift from commissions to costlier fees to bolster the bottom line.

“It is impossible to overstate how important this rule will be to the standard of living of tens of millions of Americans in retirement,” says Dennis Kelleher, CEO of Better Markets Inc., a non-profit group that promotes the public interest in financial markets. “They are looking at the prospect of literally tens of billions of dollars more staying in their retirement accounts, and being available to them in retirement for their use, instead of being diverted into brokers’ pockets due to commissions, fees and conflicts of interest.”

But the Financial Services Roundtable, an advocacy group for the financial services industry, disagrees. “The (Department of Labor’s) proposal is extremely complicated and impractical, and would adversely impact retirement savings, particularly for lower- and moderate-income Americans,” Felicia Smith, FSR’s vice president and senior regulatory counsel, said in an email.

The proposed rule seeks to impose additional safeguards as pensions disappear and Americans increasingly have to figure out for themselves how best to fund their retirements. Some advisers might steer clients toward investments that have high costs or weak returns but pay the adviser high fees or commissions.

“(Americans) are looking at the prospect of literally tens of billions of dollars more staying in their retirement accounts ... instead of being diverted into brokers’ pockets.”

Dennis Kelleher, Better Markets Inc.