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Daily Capital

A Doctor for Your Money

Do you want a doctor who gives you the medicine that’s best for you, or one that gives you the medicine he makes the most money on? The answer, of course, is obvious.

Do you want a financial advisor who gives you the investments that are best for you, or one that gives you the investments he makes the most money on? The answer should be equally obvious but today, in Washington, it’s not.

Legions of lobbyists representing the financial industry have descended on the capital with this nonsensical argument:

“If we have to act in our customer’s best interest, we can’t make a profit selling to middle-income customers. So they won’t have access to our ‘advice’, and the good people of America will see their retirement savings erode.”

What’s behind this tortured logic? Well, there are two types of investment managers:

Brokers. Brokers are salespeople, who push the products that make them and their firms the most money. And they get compensated in secret back-room deals between and within their firms.

Advisors. Many people call themselves advisors, but a true advisor is a “fiduciary” – someone who has a legal obligation to do what’s in the best interest of their customers, not of themselves.

Brokers have long been dominant, but advisors are gaining steam. And now the part of the government that oversees retirement savings accounts – which have special tax advantages to encourage savings – has suggested that anyone who provide these special accounts should be a true advisor.

This makes sense. After all, our retirement savings crisis – the fact that so few American families have sufficient savings to live out their lives in dignity – is perhaps the biggest looming financial crisis we face.

And yet, retirement savings accounts like 401ks and IRAs are too-often stuffed with over-priced and poorly-selected financial products delivered through a series of middlemen each of whom take a piece as it goes by.

Finally, the government and consumer groups are standing up to the financial lobby, and demanding this be fixed. Groups like AARP, which has an intense interest in improving our prospects in retirement, are advocating change. So is the Labor Department, which is responsible for retirement programs in America. (Take a look at my video on the Labor Department’s site.)

You can help. Click here to send a your comments to the Labor Department. Tell them you’re fed up with a system that, according to a recent study, is draining an astonishing $17 trillion each year from the retirement accounts of you and me.

Excessive fees in retirement accounts can reduce your long-term retirement savings by 25-50% over the years. (Try our free 401k fee analyzer here.) Imagine having only one half of what you saved when you face retirement. And because we’re living longer, if you retire at 65 you’ll need to be able to support yourself and your family for another twenty-five years.

We deserve something better than today’s broken system. And if Congress can withstand the blizzard of influence-peddling from the lobbyists, we’ll get it.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Bill Harris is the founder of Personal Capital. He has spent 25 years building financial technology, notably serving as CEO of Intuit and PayPal. He is the founder of several financial technology companies and has served on the boards of numerous technology firms, such as SuccessFactors, RSA Security, Macromedia, and
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