Does My Financial Adviser Have My Best Interest at Heart?


If you think your financial adviser is giving you retirement investment advice that's in your best interest, you could be sadly mistaken.

What you may not know is that many financial professionals aren't required to put their clients' best interests first because they're not bound to a fiduciary standard (a legal requirement to act in the investor's best interest).

So the financial advisers you trust may actually be motivated more by the commissions they get from steering you into certain investment selections rather than by considering what may be the best choice for your individual circumstances.

Related: Take Charge of Your Money at 50, 60, 70

It's confusing enough to figure out how to best allocate your funds and diversify your portfolio to maximize your 401(k) returns. Now you have to worry whether the adviser at the investment company that manages your plan - the person you turn to when you want to know if your selections are too risky, or perhaps worse, too conservative - has your best interest at heart?

A new AARP report, which surveyed 1,425 adults, found that 93 percent said they want their 401(k) and 403(b) plan advisers to give them advice that's in their best interest. Almost as many, 89 percent, said they want to be told, upfront, if the advice they're getting isn't required to be in their best interest.

And more than three in four (77 percent) said they're concerned that the investment advice from their retirement plan sponsor isn't required to be in their best interest.

Can you guess which age group was more trusting? If you said older workers, you'd be right. Plan participants ages 50 and up (27 percent) were more likely to trust their advisers than employees ages 25 to 49 (20 percent), the report found.

Advocates including AARP say it's more important than ever that the government require fiduciary standards for financial advisers in the retirement industry. Just consider these numbers: Between 1975 and 2010, the number of workers in retirement contribution plans soared to 73.4 million from just 11.2 million. With traditional pensions vanishing, more of us will be relying on our 401(k)s and Social Security to bankroll our retirement years.

But we may have to wait a while longer for policymakers to expand consumer protections and raise standards for retirement industry professionals. The Labor Department, which oversees 401(k) plans, has pushed back a deadline that was set for October to propose a rule that would strengthen and expand fiduciary responsibilities involving retirement assets. According to Investment News, the proposal was delayed because Labor officials said they weren't ready. No new deadline was set.

In the meantime, if you want to know whether your plan sponsor's investment adviser follows a fiduciary standard, just ask. If the answer is no, it doesn't mean that you'll get less-than-stellar advice. But you do want to know. Then ask about the fees involved in the investment selections they recommend for you.

For more information on fiduciary duties, click here for the Labor Department's guide for consumers.

Photo: Iman Mosaad/Flickr


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