Recently, a retired woman seeking advice wrote in to MarketWatch’s financial adviser, saying: “I was ‘financially set’ after my husband died. But my current adviser lost $500,000 over the last few years, and then a new adviser said my portfolio was ‘a mess’ and wants 1.25 percent to fix it. What’s my move?”
She was the victim of an unethical financial adviser hustling and decades of churning commission-based products that essentially transferred her money into his pocket. As she told MarketWatch, “The adviser was paid per trade.”
President Biden wants to do something about this. “This is about basic fairness,” Biden said when announcing a new rule to protect people like her. “People are tired of being played for suckers.” He added: “Bad financial advice by unscrupulous financial advisers driven by their own self-interest can cost a retiree up to 1.2 percent per year in lost investment. That doesn’t sound like much, but if you’re living long, it’s a lot of money. Over a lifetime, it can add up to 20 percent less money when they retire. For a middle-class household, that can amount to tens of thousands of dollars over time.”
But Republicans have declared war on Biden and middle-class people who want to save for retirement. Odds are you’ve never heard of their shock troops: Judge Jeremy Kernodle and Judge Reed O’Connor, federal judges appointed to Texas districts by Donald Trump and George W. Bush respectively.
For reference, both are hard-core right-wingers: Kernodle was one of the 13 federal judges who pledged not to hire clerks from Columbia University after the student demonstrations there against Israel’s slaughter in Gaza; O’Connor struck down the Gun Control Act of 1968 and tried to take down Obama’s Affordable Care Act.
But even if you’ve never heard of them, they’re trying their best to have a huge impact on your ability to comfortably retire when the time comes, or on how you can live off your retirement funds if you’re already past 65.
Millions of Americans use investment advisers to manage their retirement funds; the total that could be affected by these judges’ actions is, according to The Washington Post, more than $770 billion.
While there’s a wide variety of companies and financial products (insurance, annuities, 401Ks, simple investment accounts, etc.) that people use to invest their retirement funds, the advisers and brokers who handle them on your behalf basically fall into two categories: those who are looking out first and foremost for your interests and those who’re looking out first and foremost for ways they can siphon off your funds into their own pockets.
Those advisers and brokers who are looking out for you are called “fiduciaries,” an industry and legal term that requires them to put your interests ahead of their own. Typically, this means they don’t sell products that pay them a commission but instead work on a simple and transparent fee basis.
Most of those agents and companies that aren’t fiduciaries are working in what could be described as the Wild West of finance: They’re constrained by fraud and embezzlement rules but can easily shave off part of your savings with every transaction they make on your behalf simply by putting you into products that pay them a commission.
And those commissions aren’t chicken feed. Just for Americans who put their money into annuities, if all brokers and agents selling them were required to act as fiduciaries, the people buying the annuities would save over $32 billion over the next decade.
Commissions on insurance-based products can run as high as 70 percent of the first year’s payment, and can hit 10 percent on annuities. Advisers who churn your investments can drain your funds before you realize what’s happened to you, and there’s usually no recourse to get your funds back.
It comes down to America having a regulated investment industry where it’s against the law to rip off its customers by hustling high commission products versus a country where every American is at the mercy of unscrupulous investment advisers who are getting rich by shaving a few points in commissions off every trade or financial product bought or sold on our behalf.
To deal with this problem and make the United States a safe place for average citizens to save for retirement, the Biden Labor Department put into place earlier this year a set of rules that would require most investment advisers and insurance brokers to act as fiduciaries and put their customers’ interests first.
The industry immediately sued before Judges Kernodle and O’Connor, who, three weeks ago, put the fiduciary rules on hold pending appeals.
Democrats are on the side of average American consumers and retirees, which is why the Biden Labor Department put those rules into place requiring a huge chunk of the investment industry to operate as fiduciaries.
Republicans, on the other hand—including the two judges mentioned earlier—claim to believe in a mythical so-called “free market” where giant corporations and sleazy brokers can rob us of our retirement and then make campaign contributions to the GOP with some of that money.
Contributions, for example, to Republican Representative Virginia Foxx of North Carolina, whose top contributor according to OpenSecrets.org is Apollo Global Management and whose top two donating industries are “retired” and “securities and investment.” Of the $2,938,046 in cash-on-hand Foxx has for her campaigns, a mere $38,896 came from individual under-$200 donors.
Foxx, in exchange for this retirement industry largesse, has sponsored legislation in the House of Representatives that would permanently bar the Labor Department from putting fiduciary requirements into law.
While shilling for the investment industry, Foxx pretends she’s defending the little guy—a popular Republican scam—saying that requiring investment advisers and brokers to put the customer first and not shave commissions off their retirement funds would “eliminate options for working-class Americans, reduce their ability to retire and limit their access to financial advice.”
And arguably that’s true. Fiduciary requirements do “eliminate” the option of buying products that rip you off and also “limit” your access to bad financial advice that will leave you poorer than when you started. But, to Foxx’s concern, they also prevent the industry from extracting that estimated $33 billion in fees and commissions from your pension, IRA, 401k, etc.
Republicans in the House are also going to try to zero out of the Labor Department’s funds money that could be used to enforce the rules if they survive in the courts: Expect that to be part of the GOP’s threat to shut down our government this fall if they don’t get their way.
Every day, it seems, brings new examples of the stark differences between Democrats and Republicans, this merely being the most recent.
Of course, there won’t be a peep about this on Fox “News” or right-wing hate radio, keeping GOP voters safely and quietly in their ignorant little bubble.
The rest of us, however, can see what’s going on with Republican scams at every level—from taxation to climate policy to protecting our retirements.
