Beware of Bias in Retirement Financial Advice

Senior couple working on finances

Retirees have a lot of money and need to suddenly make many complicated and confusing decisions.

At retirement, most people have accumulated more money that at any other time in their life, and they suddenly must make some sophisticated financial decisions about all that money.

  • Should the 401k they acquired at work be rolled over into an IRA when they retire?
  • If so, where should they move it? The institutions that are vying for that money are not exactly impartial about how they compare to their counterparts.
  • IRAs have dozens of investment options, and many of them put money in the pocket of the investment professional who is recommending them. Which actually make the most sense for an individual's particular situation?
  • Retirees will hear advice that they put some or all of their funds into annuities, but those annuities generate big commissions that might incline advisors to recommend them even if they don't make sense. And there is often no way to undo that decision, at least without paying onerous fees to undo the transaction.
  • Creating a plan to withdraw funds from retirement accounts without running out of money too soon is complicated and confusing. Most retirees will probably need more information to make good decisions.
  • There are income tax implications for most of these decisions, it's possible to incur income tax liabilities without realizing it, possibly when the tax could have been avoided with better advice.

Financial advisors are not required to act as fiduciaries (act in the best interest of their clients).

You might think that all investment advisors are required to offer advice that is in the best interest of their clients, but they are not. With all the money at stake from commissions and fees, advisors might worry more about their own benefit than that of their clients. And clients might not realize this until they've made irrevocable decisions that cost them money. This conflict of interest is part of the reason for implementing a law to require investment advisors to act as fiduciaries, a law which is now in jeopardy.

A law requiring advisors to act as fiduciaries is in jeopardy.

An article from explains what the new law was intended to accomplish, and an article from Forbes explains why President Trump decided to delay it. The biggest concern is that this delay is just a first step in the process of repealing the rule.

A report from the Obama White House analyzes the cost of biased advice on retirement savings and concludes biased advice could be costing retirees millions of dollars in lost income.

What retirees can do to protect themselves?

Obviously one way for retirees to protect themselves is to communicate to their legislators that they want this protection to be enacted. 

In the meantime, retirees, and anyone else managing retirement funds, can look for fee-only financial advisors, like CFP and ChFC advisors, who do not accept commissions or other fees for their advice.