Did you know that a war is being waged over your TSP account? Well, it’s true. Actually, this war is being fought over all employer-sponsored retirement plan accounts. Since the TSP is the largest such plan in the United States, I think it’s fair to single it out as the object of this war – at least for the purpose of this column. My purpose aside, I am pretty confident that, given the size of the TSP, and the profits that it could generate if its contents were turned over to the retail investment industry, this war would be waged just as intensely if it were only over the TSP.
The two sides in this war are you – the TSP participants, who are represented by the Department of Labor, and the financial services industry, which is defended by a formidable army of lobbyists and campaign donors. At stake is your money. You have it, held in trust by the TSP, and those financial services firms want it… as much as they can get.
The battleground where the two sides are meeting is the debate over the passage of a new rule: the “fiduciary rule” that dramatically raises the responsibility and accountability of anyone who dispenses advice about plan assets to TSP participants. The DOL wants the rule. The brokers, banks, insurance companies and myriad other middle men do not. And I mean, they really do not want it.
A fiduciary standard of care obligates a financial advisor to act solely in the best interest of their client. Not only must any recommendation be good for the client, it must be the best alternative of which the advisor should be aware. Believe it, or not, brokers, insurance agents and other commissioned sales people are allowed to dispense investment advice without being held to this standard. Currently, only Registered Investment Advisors, which are paid directly by clients rather than investment companies are considered fiduciaries. Brokers and agents are held to a much lower “suitability” standard of care. This allows them to make recommendations based almost entirely on their compensation for a transaction, without the fear of liability for the outcomes of these recommendations.
Industry observers have been predicting the impact of this new rule on the financial services industry and it is not pretty – for them. Reduced compensation, increased liability, downward pressure on corporate profits, increased compliance costs, industry consolidation and a radically changing competitive landscape have been predicted. The DOL points out that retirement plan participants are routinely abused by “advisors” dispensing advice that is contaminated by conflict of interests. This “dirty” advice (my word) leads to higher investment costs, lower returns, degraded investment advice and increased risk for participants and their dependents.
While the industry is acting purely out of self-interest, its arguments against passage of the rule seem to be based on the ideas that the rule will bad for them, which is probably true, and that it won’t be good for you. In essence, they are arguing that the rule will, in the net, slow the transfer of your wealth to their stakeholders – something they consider unacceptable. Judging by all of the concern in the industry, you would think that the DOL is proposing to reverse the rotation of the Earth. This kind of thinking pervades the financial services industry. It’s almost as if they believe that it is their right, and their duty, to confiscate your money in exchange for little or nothing of real value. Anything that seeks to advance the interests of investors in resisting this effort is attacked and either crushed or diluted through aggressive and organized opposition.
Don’t be fooled by the convoluted twisting of simple facts. The passage of a strong fiduciary requirement for anyone providing advice to TSP participants is a good thing for you. Period. Continuing to allow profiteers to say and do virtually anything to invade and abscond with retirement savings is bad for you. I’m bringing this to your attention for two reasons: First, I hope that you will consider letting the DOL know that you support a strong fiduciary requirement for all investment advice and; Second, I want expose the true agenda of too many of those who will claim to try to help you. Too many financial “advisors” are trusted, while not being trustworthy. Protect yourself and reserve your trust for those that deserve it.
Written By Mike Miles
For the Federal Times
Publication November 9, 2015