FACT SHEET: THE DEPARTMENT OF LABOR CAN PROTECT AMERICANS INVESTING FOR RETIREMENT
FROM BEING EXPLOITED BY FINANCIAL ADVISERS WHO PROFIT AT THEIR CLIENTS’ EXPENSE
THE PROBLEM
Every day in this country, financial advisers are steering their clients into retirement investments that
maximize the advisers’ profits but drain away their clients’ nest eggs. Putting their own financial interests
ahead of their clients, these financial advisers too often recommend investments that pay hefty
compensation to the adviser but expose the investor to excess costs, unnecessary risks, and subpar
performance. Average working Americans who need to make every penny count are losing out on tens or
even hundreds of thousands of dollars in retirement income as a result.
Advisers are allowed to do this because many of them are not subject to a fiduciary duty. A fiduciary duty
means “clients first and always.” Fiduciary advisers are required to act in the best interest of their clients
regardless of any conflicts of interest they may have. And they are required to minimize, manage, and
disclose any conflicts to ensure that they are always acting in the best interest of their clients, something
that investors rightly expect from a financial adviser.
THE SOLUTION
Early next year, the Department of Labor (“DOL”) is expected to act to protect the millions of Americans
whose retirement security is put at risk by non-fiduciary advice. For the first time in 40 years, the DOL is
expected to issue a proposal to broaden and update its fiduciary duty rule to make sure that it reflects our
modern financial marketplace. If done right, the rule will help ensure that workers and retirees with 401(k)
plans and Individual Retirement Accounts (“IRAs”) are protected against predatory sales tactics when they
are seeking professional investment advice.
WHY IT’S SO IMPORTANT
The financial market has changed dramatically in the last 40 years. When the DOL first issued its fiduciary
duty rule in 1975 under the Employee Retirement Income Security Act of 1974 (“ERISA”), IRAs had just been
created and 401(k)s didn’t exist. At the time, employer-managed pension plans were the dominant
retirement savings vehicle. Now, pension plans are disappearing and Americans are personally responsible
for managing their retirement savings. That requires them to choose between many complex and
confusing investment options. As a result, they are increasingly reliant on professional financial advisers to
guide their retirement savings choices. Any investment advice that they receive must be based on sound
investment principles that puts their interests first.
The sheer number of workers and retirees who need protection from these practices is skyrocketing as
millions of baby boomers enter their retirement years and need sufficient funds to survive. In fact, every
day in this country, 10,000 Americans reach the age of 65, and that will hold true until 2030.
THE FLAWS IN INDUSTRY ARGUMENTS
Wall Street brokerage firms and insurance companies are fighting hard against a strong DOL rule because
they reap enormous profits from giving conflicted advice. They want to preserve their ability to earn high
fees at the expense of their clients, and to continue taking significant cuts out of the $12 trillion that is now
held in 401(k)s and IRAs. Here’s what they argue:
THE DEPARTMENT OF LABOR CAN PROTECT AMERICANS INVESTING FOR RETIREMENT – PAGE TWO

They say “We’ll have to abandon low and middle income clients.” They argue that imposing a fiduciary
duty will eliminate commission compensation, forcing advisers at brokerage firms and insurance
companies to drastically change their business models and abandon their low- and middle-income
clients. But this is nothing more than a scare tactic. The DOL has repeatedly explained that it will not
prohibit commission compensation, so brokerage firms and insurance companies won’t lose that type of
revenue. Moreover, research and history show that the industry will adapt to the new requirements
and continue to service the needs of all clients, large and small. Perhaps what they really mean is: “If we
can’t take advantage of our clients, then we won’t do business with them.” If the only way their
business model works is by exploiting clients, then their business model isn’t worth saving.

They say “We’re already well regulated.” They argue that non-fiduciary financial advisers are already
subject to layers of regulation that protect investors from bad or conflicted investment advice, including
a so-called “suitability” standard. But none of those rules protect investors like a fiduciary standard,
which requires advisers to put clients’ interest ahead of their own and to minimize, manage, and
disclose all conflicts of interest.

They say “Look what happened in the UK.” They cite to new rules in the United Kingdom that banned
commissions, and they claim that as a result of those new rules, investors in the UK with small accounts
no longer have access to any investment advice. But what happened in the UK is very different, since
those rules completely banned commissions and other inducements. And even in the UK, where they
have taken a much stronger approach than the DOL is considering, the market has adapted and small
accounts have not lost access to advisory services.

They say “Disclosure is enough.” They argue that the rules should just increase disclosure about the
different standards applicable to financial advisers when they provide investment advice, and that
investors should have a “choice” about whether they want to receive advice under a fiduciary or nonfiduciary standard. But independent research shows that an education campaign will do little to stop
the exploitation of retirement investors. In fact, it may make matters worse, since studies show that
disclosure can just confuse investors and embolden brokers to think once disclosure has been made, it’s
open season on their clients. Affirmative protections, not just warnings, are essential for investors. And,
those protections must take the form of a fiduciary duty that requires all advisers to act in the best
interest of the millions of Americans struggling to plan for a safe and secure retirement.

They say “Wait for the SEC to act.” And, they argue that the DOL should wait for the SEC to issue its
own rule establishing new fiduciary standards for brokers who advise retail investors about securities,
claiming that harmony is necessary. But forcing the DOL to wait for the SEC to act means delaying
critical new protections for workers and retirees indefinitely, since there is no sign that the SEC will
adopt a fiduciary duty rule in the foreseeable future. Moreover, the call for harmony is a red herring.
Congress intentionally established different statutory regimes for the DOL and the SEC, and in fact
specifically provided a stronger fiduciary standard under ERISA than under the securities laws, based on
Congress’ clear interest in protecting vulnerable retirees and retirement assets, which are given
preferential tax treatment. By applying a fiduciary standard according to its statutory authority, the DOL
will not interfere with the SEC’s ability to implement its own rule for the benefit of investors in the
securities markets.
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