For employees who participate in 401(k)-type retirement plans, 93% believe that the advice they receive within the plan should be required to be in their best interest, a policy referred to as “fiduciary duty.” A similar number (91%) favored requiring individual retirement account (IRA) providers to manage those vehicles in the best interest of account holders.
According to the survey, most people assume that financial professionals provide investment advice based on the best interests of the person they are advising. However, this may not be the case. Unless an adviser has a fiduciary duty, a legal requirement to act in the consumer’s best interest, he could provide advice that improves his own financial prospects over those of the consumer.
“The stunning results in our survey show that the average American wants to see required what they already often mistakenly believe, that the advice they receive from their financial adviser needs to be in their best interest, not in the best interest of the adviser,” said Cristina Martin Firvida, AARP’s director of Financial Security and Consumer Affairs. “We urge Congress to allow the Department of Labor [DOL] to move forward on updating the rule to provide a consistent high standard of protection for American workers and their families.”
Martin Firvida noted that under current rules governing 401(k) retirement plans, providers that offer advice to individual participants may earn money based on the individual’s investment selections.
Other findings of the survey include:
- More than three in four (77%) respondents are “very concerned” or “somewhat concerned” by the fact that investment advice from 40l(k) or 403(b) providers is currently not required to be in the best interest of participants;
- More than half (62%) described themselves as "very" or "somewhat" concerned by the fact that their plan provider can give advice and make money from the investments that plan participants select; and
- After having read a statement that explained advice from plan providers is not currently required to be in the best interest of participants, half of respondents (50%) said such information makes them “less likely” to trust their provider for advice. More than one-third (37%) indicated that that disclosure has “no impact” on their level of trust, however.
The survey was conducted by GFK Custom Research for AARP from May 24 to May 31, 2013, and involved individuals ages 25 and older who had money saved in either a 401(k) or 403(b) plan. The AARP is a nonprofit, nonpartisan organization that deals with issues such as health care, employment and income security, retirement planning, affordable utilities and protection from financial abuse.
The full AARP survey can be found here.