AARP has delivered more than 5,000 petitions to Senators Charles Schumer and Kirsten Gillibrand, both of New York, seeking to win their support to "close the loophole" regarding the fiduciary standard that applies to retirement plans.
Brokers who are registered with Financial Industry Regulatory Authority (FINRA) are required to recommend "suitable" investments for investors, considering such factors as age and risk tolerance when determining suitability. Advisors registered with the states and the SEC, on the other hand, are required to act as fiduciaries — in the clients' best interests. AARP, along with other consumer and union groups, is seeking to have the fiduciary standard applied to advisors who make retirement plan recommendations.
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Currently financial advisors are allowed to make recommendations with regard to 401(k)s and IRAs that do not necessarily put the financial well-being of the participant ahead of that of the advisor. That includes investments that carry higher fees, higher risk or lower returns; IRA rollovers that charge higher fees than the 401(k) from which the participant's money is rolled over; and variable annuities within IRAs that, while providing guaranteed income streams, can also carry high fees, lock in participant funds for long periods of time, and provide no additional tax benefits beyond those already provided by an IRA.
The retiree organization announced its action and referred to President Obama's visit to AARP in February, during which he announced plans to "close the loophole" in current regulations that allows investment advisors to consider their own financial interests before the interests of their clients when making recommendations about retirement accounts. Obama has directed the Department of Labor to develop new standards that require advisors to put the client's best interests first.
In addition to AARP, not just other consumer groups but labor unions as well have been pressing the DOL for a tightening of the fiduciary standard that would oblige brokers handling retirement accounts to adhere to the standards of care established under the Employee Retirement Income Security Act (ERISA).
Financial industry organizations, including the Securities Industry and Financial Markets Association (SIFMA) and the Financial Services Institute (FSI), have opposed tightening of the rule, saying that it will impair the public's access to quality financial advice.
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