Retirement Savers Are Getting Ripped Off

Where is the line between selling a financial product and providing investment advice? That question is at the heart of a debate over a new proposal that aims to protect Americans’ retirement savings.

Since 1975, the government has required pension fund advisers to meet a fiduciary standard, which means putting their customers’ needs first and limiting conflicts of interest. But the standard applies only to those who supply advice “on a regular basis.”

Today, many Americans get their most important financial advice once: when they retire and must decide where to invest their accumulated tax-free savings from 401(k) or similar plans.

Americans Are Saving More for Retirement

Last year, an estimated $779 billion was moved in such “rollovers.” That’s a tempting target for salespeople who promise they’re acting in the customers’ best interest but in fact are just trying to earn themselves a fat commission.

The Department of Labor, which regulates pensions, wants to address this. Its new proposal would expand the definition of “investment advice” fiduciaries to include those who make a recommendation about a retirement account — even if it’s just once — in return for compensation. The department estimates that sales of just one type of product, fixed-index annuities, chip away as much as $5 billion from retirees’ savings each year.