I don't know much about government, but I do know a little about the retirement business and maybe even a little more about the fiduciary business. Last week's MyRA proposal stunned me for two reasons.
First, it is a monument made of financial illiteracy. Now, I recognize the folks in Washington tend to be out of touch when it comes to us regular folk, but, when it comes to an industry I'm more than intimately familiar with and one which can have a profound impact on the lifestyles of many, many people, quite frankly, I would have expected a little more due diligence.
Instead, as so eloquently put by many of my colleagues (see "Finance Industry Pros: MyRA Misses The Point," FiduciaryNews.com, February 4, 2014), while the President correctly acknowledges the issue of the lack of retirement savings, he then commits to a policy that only the most financially naïve (a nice way of saying illiterate) would commit too.
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But I'll save that line of thinking of another day. What I'd like to address today is the second reason the proposal stunned me.
It's a case study of breaching one's fiduciary duty.
The one thing I like about the Obama administration is its support (I guess) for the fiduciary standard. But how can one expect a government that flagrantly violates the fiduciary standard to successfully promote the fiduciary standard?
The MyRA proposal breaches the fiduciary standard on at least two points.
At the outset, the proposal is not in the best interests of the client. Let me count just a few of the ways. First, the MyRA creates a superfluous product that will only further confuse an already confused marketplace. In other words, you don't need a MyRA to do what the MyRA does. Second, as most financial planners would attest, why are we telling people who probably don't have an emergency fund to save for retirement? We've all learned (or could easily discover by reading almost any financial text) that, before all else, people need to save enough for an emergency fund. Retirement comes second.
And then there's the case of limiting investments to government bonds. Any retirement professional who suggests someone with a thirty+ year retirement horizon invest solely in bonds would be ripe for a malpractice suit. We all know bonds lag behind stocks over the long term. Some of us even know bonds are particularly precarious right now. Those expecting a "safe" portfolio might be in for an awful surprise as interest rate rise. (Those interested in learning more should read "Ten Reasons Retirement Experts Want You to Say "No" to MyRA," FiduciaryNews.com, February 5, 2014.)
But perhaps the most egregious offense deals with the self-dealing. Image Merrill Lynch approaching retirement investors and selling a proprietary retirement product instead of any one of the existing universal vehicles already available. Now image Merrill Lynch, having sold their proprietary product, announcing that product will only invest in Merrill Lynch corporate bonds. By this time, if you're like me, you've already lost count of the number of times self-dealing has occurred.
The fiduciary hound dogs would have a field day with that one. Heck, it's so insidious that even both the SEC and the DOL would be hot on Merrill Lynch's tail.
Well, this fictitious Merrill Lynch breach is exactly what the MyRA proposal is
Where is the outrage?
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
