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Financial advice should benefit the recipient

Ronald Reagan once famously joked that "status quo" is Latin for "the mess we are in." A very clear case in point is the current debate in Washington about requiring brokers to start putting the interests of their clients first.

The U.S. Department of Labor (DOL) has proposed a "fiduciary rule" that would require all financial professionals to stop giving conflicted, self-serving advice when it comes to retirement investments. The financial industry's case against the rule boils down to this: It will make it more expensive and less profitable for them to provide advice to retirement savers, so fewer people will be willing to provide it.

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Experts dispute that, and there is no doubt that leaving things the way they are now is much more expensive for America's millions of retirement savers.

Here's the problem: Savers — small and large — often have to rely on advisers to understand their options regarding investing their retirement savings. Outdated Labor Department rules have allowed brokers, insurance agents and others offering retirement investment advice to put their own interests ahead of their clients' best interests. Such investments generate handsome commissions for them but saddle unsuspecting clients with high fees and poor returns. The annual cost of such "conflicted" investment advice is estimated to be $17 billion — money that is going from the retirement accounts of average Americans into the pockets of financial professionals.

The end result of all that conflicted advice is that millions of Americans end up with smaller nest eggs for their golden years. They will run out of money sooner or be able to do less in retirement. Some unfortunate savers end up losing much, or even all, of their nest eggs when conflicted advice puts them in inappropriately risky investments with high fees.

The good news is that the DOL's proposed rule change tackles the problem head on, requiring anyone giving retirement investment advice to act in the best interest of their clients and to comply with what's known as their fiduciary duty. It's common sense, but that hasn't stopped brokers and others in the financial industry from fighting hard against the rule to preserve the hefty fees they earn at the expense of their clients.

That doesn't mean there are not good options available today for individuals who want help, however. Using technology-based platforms, a new generation of firms is now offering retirement investment advice to clients all across the income spectrum for very modest fees. They include Wealthfront, and our firm, Rebalance IRA, among others. This new generation of tech-driven advisory services is finding ways for retirement savers to lower their investment costs. By harnessing efficient modern technology to cut costs by over 50 percent, it is possible to do the right thing by clients and still run a profitable company.

It's time to hold all financial professionals accountable by consistently requiring them to act in the best interests of their clients. That's what the DOL rule can do. Americans struggling to save for a dignified retirement should no longer be subjected to the conflicts of interest that are bleeding off their savings. And, if traditional brokerage firms can't live with the simple fiduciary standard and refuse to serve modest savers, so be it. Other financial professionals on and off the Web who embrace the client-first approach stand ready to help all Americans prepare for a secure retirement.

We can do better than a status quo that imposes a "tax" of $17 billion per year on American retirees. We don't have to settle for "the mess we are in" when it comes to the financial well being of the retirement savers of America.

Charles Ellis is the former chairman of the Yale Endowment Investment Committee. Scott Puritz (puritz@rebalance-ira.com.) is the managing director of Rebalance-IRA, a technology-enhanced national investment service that has offices in Bethesda and Palo Alto, Calif.

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