A new “conflict of interest” rule is being debated in DC. The rule is designed to ensure that when it comes to saving for retirement, financial advisers must put their clients’ interests above their own. The rule is trying to stop advisers from putting their clients into investment products that pay fees to the advisers for their recommendation, but offer less return for the investors.
The proposed rule would go a long way toward reversing the estimated $17 billion that families are losing each year as a result of conflicts of interest by reducing the prevalence of bad advice, allowing the many advisers who are already ignoring or refusing conflicted payments to compete on a level playing field and expand their business. Right now, these advisers providing quality guidance risk losing business to conflicted advisers who claim their services are cheaper or “no fee” when, in fact, they get their compensation from side payments from the companies whose investment products they recommend. Conflicted advisers are ultimately more expensive, both because they are getting higher fees that the consumer isn’t seeing and because they are recommending products that have lower returns — even before fees — than equivalent investments.