by Barbara Nevins Taylor
If you trust your investment advisor, great. But you may want to take a second look and ask some hard questions about the way the investment advisor you use does business.
President Obama plans to introduce new rules in the next few weeks that crack down on conflicts of interest by investment advisors.
The President’s Council of Economic Advisors found a sharp decline in the number of Americans who get retirement income from pensions. Instead, a growing number of people depend on investments like 401(k’s) and IRA’s.
More than 40 million American families trust, collectively, more than $7 trillion to IRA’s.
Economic researchers found investment advisors often have hidden conflicts of interest. And that doesn’t turn out well for you.
- Conflicted advice leads to lower investment returns. Savers receiving conflicted advice earn returns roughly 1 percentage point lower each year.
Many investment advisors get paid for selling the so-called “products” they sell you.The Council of Economic Advisors estimates “the aggregate annual cost of conflicted advice is about $17 billion each year.
The conflicts lead to big losses.The Council of Economic Advisors says, “A retiree who receives conflicted advice when rolling over a 401(k) balance to an IRA at retirement will lose an estimated 12 percent of the value of his or her savings if drawn down over 30 years.”
And there’s more. “The average IRA rollover for individuals 55 to 64 in 2012 was more than $100,000; losing 12 percent from conflicted advice has the same effect on feasible future withdrawals as if $12,000 was lost in the transfer.”
Here’s what you need to do.
1. Ask questions of your advisor.
2. Make sure his or her conflicts of interest don’t cost you money.
3. Get second opinions.
The Obama administration fix won’t come quickly. It must go through a rule making process and the Department of Labor will be in charge. It will ask for public input. You put in your two cents.
And then, the administration will issue a rule that will attempt to reign in the wild west style of some of these financial advisors.
What do you think?