Sep 22, 2015 10:07 AM EDT
It's estimated that savings of Americans for retirement is at a whopping $17 billion per annum. But is it in the safe hands. The conflicted financial advice is costing the US citizens billions of dollars.
US President Barack Obama often reiterated his commitment on bringing best financial advice for retirement plans. He asked financial advisors to serve the clients' best interest first.
The Office of Management and Budget (OMB) is reviewing the issue of retirement plans and role of financial advisors. The US government is very soon to take an action plan to ensure genuine advice on retirement plans. The conflict of interest can cost pensioner more than 12 percent of savings and shortening period by five years in an Individual Retirement Account (IRA).
The US government is concerned about the way the conflict of interest costing middle class and working families on their retirement plans.
Under the existing system, financial advisors tend to advise their clients keeping in view of their own benefits, but not the customers' interests. Many insurance firms and other alternative investment funds offer lucrative perks, commissions, holiday packages, etc. to brokers and financial advisors.
This is where, pensioners or people about to retire would fall fray as majority of financial advisors influence their clients' to fall in line on packages that boost their bottom line, but not their customers. The need of the hour is to remove this incentives system for brokers and financial advisors as it became a vicious cycle for clients.
Experts and law makers are suggesting that there should be alignment of interests of financial advisors and clients bringing a life-time solution for the families. The US Labor Department is also working on this problem.
There's growing awareness about retirement plans, but financial advisors should come forward wholeheartedly with a commitment of service towards pensioners and people who're retiring, according to the feedback received by the Labor Department.
The issue is under consideration of Office of Management and Budget (OMB) for review. Recently, President Obama said that though there're good financial advisors available in the market, there were also other financial advisors, who receive backdoor payments or hidden fees.
The President also observed that some financial advisors influence their clients to opt for bad retirement plans bearing higher fees and lower returns.
According to a latest report from Council of Economic Advisors (CEA), about $1.7 trillion of IRA assets are invested in such products that generate conflict of interest. It's estimated that when a retiree rolls over $40,000 to an Individual Retirement Account (IRA), it costs him 12 percent of the savings if drawn down over 30 years. If it involves conflict of interest, his savings would expire five years earlier.
The US government is likely to take some action to ensure best advice on retirement plans fulfilling the best interests of clients. It doesn't mean that all financial advisors are bad, but some good people in a faulty system.
Unlike doctors and lawyers, there's no sworn oath for financial advisors, who manage a person's life time hard earned savings. The conflict of interests in advising retirement plans is costing a lot of money on pensioners and people, who're about to retire, in forms of backdoor payments and hidden fees. This is nothing but benefiting the Wall Street brokers at the cost of retirement savings of the people.
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