403(b) Investment Fee Transparency
For many Americans, planning for retirement can be overwhelming. The average person does not have the skills to navigate the often complex landscape of retirement vehicles, plans and options. For these reasons, most people seek professional advice and guidance when planning for their retirement. Public employees in New York State are members of one of the best public pension funds in the nation, and accordingly, have a secure, well managed retirement. However, to augment their earned public pensions, many public workers open additional retirement investment accounts offered through their public employers, known as 403(b) accounts, and hire financial professionals to manage their investments.
Existing laws, regulations and professional standards at the state and federal level only hold certain financial professionals to a "fiduciary standard" that requires them to put their client's interests above their own. These financial professionals must avoid and/or disclose conflicts of interest and provide prudent and objective analysis and advice that is in the best interest of their clients.
Often, investors do not know whether the financial professional they hired is required to adhere to a fiduciary standard or not. Other financial professionals, such as broker-dealers, follow a different set of standards known as the "suitability standard" and are under no statutory requirement to choose investment options that may provide the highest rate of return for the lowest possible fees. These professionals sometimes encourage the use of investments that carry higher transaction fees, or direct their clients towards less beneficial "in-house" investments.
Legislation introduced in both houses of the Legislature, S.2872 (Hoylman)/A.2476 (Dinowitz), will provide additional transparency to consumers regarding the different standards to which financial professionals are held. This will empower consumers to make more informed decisions about their financial investments. According to a report issued by the New York City Comptroller on this issue, high fees, limited transparency, unacknowledged risks and outright conflicts of interest have cost investors an estimated eight to 17 billion dollars per year in retirement savings. For the average investor, this results in a loss of close to 10 percent of retirement savings after 30 years.
As a union member and a constituent of your district, I urge you to support this legislation to ensure investors more fully understand the distinctions between these investment professionals' titles, duties and responsibilities so they are able to maximize their retirement savings and security.
Thank you for your consideration of this important matter. I look forward to a reply to my letter.
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