CONFLICTED INVESTMENT ADVICE AND "FREE" LUNCHES

Abstract

This Article critically examines the consequences of conflicted investment advice given on retirement savings. It briefly traces the evolution of advice regulation under ERISA, including a Fifth Circuit decision that vacated a rule the Department of Labor issued in 2016. The Article highlights the tension between industry entities’ public claims of trustworthiness and those entities’ resistance to accepting fiduciary responsibility for investment advice. It identifies four transformational shifts that began during the 1990s and made it critical that retirement savers receive unconflicted investment advice. 

Special attention is paid to the rise of fixed indexed annuities and their problematic sales practices, which often are incentivized by high commissions and other inducements. The Article shows why, contrary to the arguments of some in the financial services industry, fiduciary standards would not result in an advice desert. The Article advocates for regulation that holds all providers of investment advice on retirement plan assets to a fiduciary standard, which is what retirement savers want, expect, and need. 

Keywords: fiduciary, investment advice, retirement, pensions

JEL Classification: K22, K31