This week PBS aired a Frontline episode focused on the retirement savings situation in the United States. It brought to the forefront several issues that deserve our attention.
1) Egregious retirement plan fees. This shouldn’t come as much of a surprise, but many small retirement plans are burdened with significant fees from insurance companies, mutual fund companies, plan administrators and financial advisors. The worst plans tend to be provided to the smallest companies and non-for-profit organizations, including educators. Many teachers in small colleges and local school districts are burdened with insurance-based 403(b) plans with poor investment options and high fees.
2) The failure of expensive, actively managed investment options. PBS brought on Jack Bogle of Vanguard and Jason Zweig of the Wall Street Journal to help people understand that their best option for investing is low-cost index funds.
3) (This is the big one) The need for a fiduciary standard for investment adviors. Currently, many individuals holding themselves out as financial advisors are not bound to act in their clients’ best interests. According to the Frontline episode, roughly 85% of those in the investment industry are not fiduciaries and therefore not required to put their clients’ best interests before their own. As a result of the Dodd-Frank financial reform the SEC and Department of Labor are considering a uniform fiduciary standard for all investment professionals, but the brokerage industry is lobbying hard to weaken the standard or avoid its implementation entirely.
The Frontline episode is informative but also intentionally inflammatory at times. It is absolutely worth watching to understand the complications faced by investors in retirement plans. You can watch part one of the documentary below, or go to the PBS Frontline website to watch the episode in its entirety.