For employees who participate in 401(k)-type retirement plans, 93% believe 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 percentage (91%) favored requiring IRA (individual retirement account) providers to manage those vehicles in the best interest of accountholders.
According to the survey, most people assume 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 or she could be providing advice that improves their own financial prospects than that 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 Department of Labor 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) type retirement plans, providers offering 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 investment advice from 40l(k) or 403(b) providers is currently not required to be in the best interest of participants;
- A solid majority (62%) described themselves as very or somewhat concerned by the fact their plan provider can give advice and make money from the investments plan participants select; and
- After having read a statement explaining 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. Slightly more than one-third (37%) indicated that disclosure has “no impact” on their level of trust.
The survey was conducted May 24 to May 31, 2013, for AARP by GFK Custom Research and involved individuals 25 and older who had money saved in either a 401(k) or 403(b) plan.
The survey results can be found here.