The $64,000 Question: Where Did My Retirement Savings Go?

Investment advice should be free of conflicts of interest

The way Americans save for retirement has changed drastically over the past few decades. Thirty years ago, the typical worker had a pension through his or her job. Today, if workers have a retirement plan at all,  it is likely a 401(k) or IRA.

Why does this matter? Because now more than ever, individuals must make the complicated decisions about financial security in retirement: what to invest in, how much, how to adjust their investments during their lifetime, and how to ensure their income lasts through their retirement years.

Many people understandably turn to a professional for help navigating the sea of retirement savings options available. However, what many don’t know is that financial professionals are not always obligated to act with your best interests in mind.


We see the commercials all the time on TV — financial companies promising to help us meet our goals and dreams. Most Americans assume a financial professional will act with his or her clients’ interests in mind, but unfortunately, that isn’t always the case.

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Take the difference between investment advisers and brokers, for example.

Investment advisers are subject to a “fiduciary duty.” That means they are required to act in the best interests of their clients and to make full and fair disclosure to clients regarding conflicts of interest.

Brokers, on the other hand, are not.

Brokers are simply required to make recommendations that are generally “suitable” for the investor. As a result, brokers are free to recommend a product that yields them a higher profit, even if another product would have been a better fit for the customer. And even though they are regulated as salespeople, some brokers also market their services as financial advisers and take advantage of consumer confusion.

Let’s face it. How many of us know the difference between these types of financial professionals? All we know is that we expect their advice to be in our best interest. But that is simply not the case today.

The high cost of bad financial advice

Under the worst circumstances, consumers may be getting advice that is not just costly, but actually predatory. All too often, financial professionals recommend products with fees and costs that are higher than necessary, which erodes the value of the client’s savings or that yield returns lower than they could be. Over time, the costs can skyrocket.

From the Department of Labor: “Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000.”

That means a seemingly small 1 percentage point difference in fees each year would reduce your retirement savings by a staggering $64,000.

Termites and earthquakes

Consider this: When the stock market dropped 25 percent or so, as it did during the economic crisis, the whole nation was in economic turmoil. But a single percentage point in additional yearly fees (or lower returns) produces essentially the same loss for the consumer.

We reacted strongly to the financial earthquake produced by the Great Recession. We need to react just as strongly to similar losses that add up over time. While a financial professional who's giving conflicted advice may have more of a termite effect than an earthquake effect, the impact on average Americans and their retirement dreams is just as devastating and significant.

Washington needs to act

With the risks and challenges of investing having been shifted onto individuals, we must have regulations in place to ensure that the financial professionals relied upon by Americans are legally required to act in the investors' best interests.

The Securities and Exchange Commission and the Department of Labor are currently considering 091714 DOL Fiduciary Sign on letter FINAL that would do just that, by closing regulatory loopholes that have developed over the years. Their goal should be quite simple: All those who provide individualized financial advice about investments and retirement accounts should be held to a fiduciary standard — in other words, managing conflicts of interest and acting in the best interests of the investors they are serving.

AARP will continue to actively advocate on this issue on behalf of our members and all Americans and to ensure everyone has the ability to achieve their retirement goals and live independently as he or she ages.


Follow me on Twitter @DavidCertner for the latest updates on what’s happening in Washington on the issues that matter most to older Americans.

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