The Department of Labor recently enacted a rule requiring that “advisers” — meaning investment and insurance sales people — who offer “advice” to participants about their retirement accounts act as fiduciaries and accept the responsibility and liability that goes along with that role.
In simple terms, this means that anyone who tells you to do something — anything — with your Thrift Savings Plan money, is obligated to put your interests ahead of all others. This poses a rather unpleasant problem for the “financial services” industry, which has built a massive profit generating machine upon a foundation that includes, as its cornerstone, an almost complete lack of accountability for quality or results.
Challenges to the new rule were being formulated even before the final decision to enact it had been announced. A group of financial industry firms and their agents have filed a suit in federal court to block enforcement of the rule on the basis that the DOL does not have the necessary authority to have imposed it in the first place. I’m not going to waste your time by arguing over the details of the rule, or its validity or enforceability. I’ll leave that to the lawyers, the courts and of course, the lobbyists. Instead, I want to make sure all TSP participants understand the sides in this fight and the reasons for their passion for fighting.
On one side of the rule, we have disinterested fiduciaries, like the DOL. They have a mission to help protect labor — that is the people who work for their living and are trying to build some financial security. They are passionate about protecting the interests of labor against threats that might try to abuse them.
On the other side of the rule are the profiteers who pose the threat to the interests of labor that the DOL is worried about. These are salespeople, agents, and the organizations that they represent, who thrive by finding ways to separate retirement savers, like TSP participants, from as much of their nest eggs as possible. Sometimes this is accomplished by violating the rules, but usually it is easily accomplished within the rules.
The problem with the current system — the one without uniform application of fiduciary standards for all financial advice — is that it’s very difficult to know who and when to trust. Registered investment advisers are held to a fiduciary standard of care, while insurance agents, salespeople and other intermediaries are not. But, any or all of these people may offer financial or investment advice. Combine this complexity in the financial advice landscape with concepts, products, opportunities and risks that are beyond the clear understanding of most victims, and you have set the stage for financial slaughter.