Saving for retirement just got easier
Many Massachusetts families, like families all across the United States, are finding it harder than ever to save for their retirement. There are a lot of reasons for this: Wages are flat, housing costs in our state continue to rise, and 40 percent of workers — including more than 70 percent of the lowest income workers — don’t have access to a retirement plan at work.
But there is another reason families in the state aren’t saving enough for retirement. According to new research from the Economic Policy Institute, people saving for retirement in Massachusetts are losing $491 million every single year because of financial advisers who give advice that lines their own pockets at the expense of their clients.
Because of a loophole in the law, it has been perfectly legal for advisers to recommend products that benefit the adviser through high fees, commissions, kickbacks, or prizes — and that leave the customer with a lousy product. Unlike doctors and lawyers, who historically have been required by law to put their patients’ and clients’ interests first, financial advisers have been free to skim a little off the top, putting their own bottom line ahead of their clients’ best interests. Not anymore.
On June 9, the Labor Department’s new Conflict of Interest Rule took effect, and that means this giant drain on Massachusetts families’ retirement savings is coming to an end. More than two years ago, I joined President Barack Obama and Secretary of Labor Tom Perez in Washington to announce the proposed Conflict of Interest Rule. Now, that work becomes a reality. All advisers making investment recommendations for retirement accounts including IRAs and 401(k)s are required to act as fiduciaries, meaning they must make only those recommendations that are in the best interest of their clients. Period.
This rule is good news for families in Massachusetts, but it’s also good news for the honest financial advisers across Massachusetts who have always put their clients’ interests first. I’ve had a chance to meet with many of these advisers, and their message is clear: Financial advisers can make a living for themselves and for their families and still put their clients’ interests first. Now, because of the Conflict of Interest Rule, honest financial advisers across Massachusetts no longer have to compete against the ones who don’t.
The Conflict of Interest Rule is a huge victory for hard-working people in Massachusetts. But the fight is not yet over. Giant financial institutions and their armies of lawyers and lobbyists in Washington have fought this rule every step of the way, and they aren’t backing down now.
Shortly after taking office, the Trump administration proposed to delay the rule by 60 days. In response, 4,500 individuals in Massachusetts voiced their strong opposition to the delay. The administration ignored these concerns and delayed the rule anyway. So we pushed back harder. In a short space of time, 193,000 Americans weighed in with an official comment on the proposal, and 92 percent opposed the delay. The Labor Department concluded that there was no legal path forward to justify the additional delay the financial services sector had hoped for.
Even though this new, higher standard is now in effect, President Trump and Secretary of Labor Alexander Acosta haven’t given up on gutting key protections of the rule. They have said they are open to delaying other critical provisions scheduled to kick in on Jan. 1, and they are even considering deferring to the Securities and Exchange Commission to rewrite the rule — a process that could take years to complete and would likely result in a watered down and toothless standard. Americans have already waited long enough to get financial advice that is in their best interest, but we must remain vigilant and fight off any steps to roll back the progress we’ve made.
Despite the concerns about where the Trump administration may go next, this is a moment to celebrate. The new fiduciary rule is a win-win-win. It levels the playing field for honest financial advisers. It puts a stop to the $491 million-a-year loss that Massachusetts families suffer. And it means that seniors in Massachusetts will have more money to spend in their local communities and support our state’s economy.
Saving for retirement is hard enough. The last thing hard-working families in Massachusetts needed was to worry about whether their financial adviser had their best interests in mind. This time, government worked for the people, and that means a lot of folks can rest a little easier.
Elizabeth Warren is a US senator from Massachusetts.