President Biden to Announce New Actions to Protect Retirement Security by Cracking Down on Junk Fees in Retirement Investment Advice
New proposal builds on Biden-Harris Administration’s work to eliminate junk fees and promote competition—a key pillar of Bidenomics America’s families spend a lifetime saving so they can retire with dignity. But junk fees are chipping away at their savings, going to financial advisers with conflicts of interests instead of to American families, and making retirements less secure.
America’s families spend a lifetime saving so they can retire with dignity. But junk fees are chipping away at their savings, going to financial advisers with conflicts of interests instead of to American families, and making retirements less secure.
Right now, when a financial adviser provides retirement advice, they may be paid by the saver or by the firm who makes the investment product they recommend. Responsible retirement advisers deserve to be paid for their important work. But when a firm pays a retirement adviser more to recommend a specific investment product, that creates a conflict of interest that often leads to Americans selecting an investment product recommended to them that generates lower returns. And these conflicts of interest are meaningful: an adviser may receive a commission as high as 6.5 percent to recommend some insurance products. When the saver pays for advice that is not in their best interest, and it comes at a hidden cost to their lifetime savings, that’s a junk fee.
These costs add up. Requiring advisers to make recommendations in the savers’ best interest can increase retirement savers’ returns by between 0.2% and 1.20% per year. Over a lifetime, that can add up to 20% more retirement savings—potentially tens or even hundreds of thousands of dollars per impacted middle-class saver that could otherwise have been lost to junk fees. For example, advice rooted in conflicts of interest regarding the sale of just one investment product—fixed index annuities—may cost savers as much as $5 billion per year. This hurts workers, families, and the American economy.
That’s why today, as part of his broader Bidenomics agenda to grow the economy from the middle out and bottom up, President Biden is announcing that the Department of Labor will propose a new rule to close loopholes and require that financial advisers provide retirement advice in the best interest of the saver, rather than chasing the highest payday. This step would minimize junk fees in retirement products, promote competition, and protect American workers’ retirements. Specifically, the rule would: