06/29/2010 09:29 pm ET | Updated May 25, 2011

Your Call to Action: The Financial Reform Myth!

Here's all you need to know about pending legislation relating to financial reform:

Banks stocks soared on June 25, 2010 as news of the new bill was circulated.

In an excellent commentary, Jane Bryant Quinn noted that investor protection was gutted in the Senate version of the bill by removing any obligation of brokers and insurance agents to act in the best interests of their clients. Registered Investment Advisors have this obligation (known as a "fiduciary duty"). Why anyone would hand over their money to someone who can place their interests above their clients is beyond me, but that is precisely what most investors do.

More appalling is the fact that most employers entrust their 401(k) plans to the same brokers and advisers. Employers have a fiduciary obligation to their employees to insure their 401(k) plans are in the best interest of the employees. You would think they would want their investment professionals to live up to the same standard. Legally, this issue is very significant. A real fiduciary under ERISA (the federal law governing retirement plans) accepts 100% of the liability for the selection and monitoring of investment options.

Brokers and insurance agents toss the "fiduciary" label around, but they accept no liability for the expensive, under-performing mutual funds they select for 401(k) plans. Insurance companies are particularly ingenious at disguising their lack of fiduciary responsibility. Some issue a "Fiduciary Warranty" which seems very impressive. However, when you read the small print, this "warranty" disclaims all fiduciary responsibility!

If you are an employer and want to confirm whether the investment adviser to your 401(k) plan is a real fiduciary, require the following statement to be signed and returned to you: "We confirm we are 3(38) fiduciaries under ERISA." Accept no departures from this language. You should not count on getting it back.

Congress is beholden to the securities industry. As Ms. Quinn notes, Sen. Tim Johnson (D. South Dakota), was responsible for eliminating the proposal in the House version of the bill that would have imposed fiduciary responsibility on all advisers. He's not known as "the Senator from Citibank" for nothing.

Since no meaningful legislative reform will be forthcoming, investors need to take action. Here are some suggestions you can easily implement:

1. Don't do business with anyone who will not accept fiduciary responsibility in writing;

2. Don't do business with anyone who requires you to submit to mandatory arbitration, particularly if the designated forum is FINRA, which is an industry trade association pretending to be a neutral arbitration forum.

3. If your employer does not match your 401(k) contribution, don't participate in the plan. Instead, consider a traditional or a Roth IRA (if you qualify).

4. Even if your employer does match, consider not participating in your plan. This may, or may not, be a sound financial decision, but you'll feel good about not participating in system designed to enrich brokers, advisers and mutual funds at your expense.

Let's face it. You're on your own. However, by taking these simple steps you can (and should) opt out of a system that has destroyed the lives of so many hard working Americans.

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