While the impact of biased investment advice in the college savings arena is very troubling, the impact of biased investment advice is even more concerning in the area of retirement savings. The lack of a fiduciary standard for retirement investment advisors costs consumers $17 billion a year in unnecessary fees to manage 401(k) and other retirement funds such as Individual Retirement Accounts (IRAs). The Obama Administration and U.S. Department of Labor are in the process of finalizing new rules which will require all retirement investment advisors to comply with a fiduciary standard. Woodstock Institute strongly supports this policy. Americans for Financial Reform is asking folks to sign on to this petition to counter the Wall Street lobbyists who are urging the Department to water down the rules.
Like parents saving for college and workers saving for retirement, entrepreneurs and small business owners are faced with financial industry entities who are not currently held to a fiduciary standard. The lack of a fiduciary standard for brokers and lenders to small businesses often results in business owners getting stuck in debt traps due to high-cost “marketplace” loans that are made without regard to the borrowers’ ability to repay and often tied directly to borrowers’ accounts and receipts. Online marketplace lenders have moved in aggressively to fill the gap created by mainstream financial institutions’ failure to provide access to capital to small businesses in low- and moderate-income areas and communities of color. Some progress was made recently with more responsible marketplace lenders and others endorsing a Small Business Borrowers’ Bill of Rights (BBOR) which, among other things, calls for lenders and brokers to disclose APRs and all fees and to lend based on a determination of ability to repay. The BBOR needs to go further, however, to require a fiduciary standard. Beyond that, Treasury, the Federal Trade Commission, the Consumer Financial Protection Bureau, and other regulators need to step into the gap to create a level playing field and regulatory scheme that protects small business borrowers from debt traps. Treasury is accepting comments on its Request for Information through September 30.