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.
The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.
Follow Dan Solin on Twitter: www.twitter.com/DanSolin
"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."
So, advising someone to not participate could be extremely BAD ADVICE.
I have no confidence in the markets as they currently are set up. My employer matches 3% and over the 4 years I'd been with the company about broke even in terms of growth.
My wife cashed hers out and moved it too without tax penalty. Her employer matched up to 6%. We both continue to make contributions but move them annually so we get the Employer match.
I have certainly read about egregious misbehavior in the financial world which would have handed the perpetrators jail terms or heavy law suits if only they had that "fiduciary responsibility". That is only because miscreants know that they can be obvious and brazen. If you impose a "fiduciary" law on a system that is evidently corrupt, that system will merely generate elaborate structures designed to evade the new law. Brokers will ostentatiously frame the new codes of legal responsibilities on their office walls while they continue the same old behavior.
Changes in structure might induce reform. Commentators are asking in exasperation, "If they want reforms, why not start by reinstalling Glass-Steagal?" That one seemed to work for sixty years governing what the law covered. Instead we have a "reform bill" of tweaks and twiddles that evidently retains the bulk of a bad system.
You're not alone:
http://pionline.com/apps/pbcs.dll/article?AID=/20100624/REG/100629943/-1/PIOnlineInsider-01
401k plans are the most non-compliant plans in the retirement benefits universe.
Absolutely, put money in an individual IRA first.
You'll be lucky if you can put a third of that away.
If the plan is well run with low expenses, I have a better deal than you.
401k remains the BEST way to grow your assets over the long term.
As an old programmer, the IF in your statement should be followed by an ELSE.
Great, I invest in my government through my vote, but apparently I’m out invested by the Bankers. It seems that their investments in Congress are paying great rewards, just look to their stock prices. Bankers, of course, are no fools, they invest only in blue chip stock; that is a stock that is well-established, has stable earnings with no extensive liabilities, and pays regular dividends, even when business is faring worse than usual.
As for my investment in government? Well, not sure that I really own that particular stock; can’t afford to purchase.
Even if it's not that much, to consider lobbying an investment speaks volumes about how our government works.