Far too many business leaders today define the success of their company solely by the profit it generates. That's one reason why so many Americans are losing faith in major corporations - they're tired of seeing a mentality that puts profit before people, whether those people be the companies' employees or their fellow citizens.
But there's a decision industry leaders can make today that would send a signal that we're serious about rebuilding the public trust: supporting a Department of Labor initiative that would finally make doing what's right for retirement savers the law of the land.
Earlier this year, the Department of Labor proposed a new "Best Interest Rule" that's so common sense most Americans believe it's already in place. Very simply, it requires brokers and other financial advisers to put the best interests of their clients' savings for retirement first, before their own bottom line. It closes a 40 year-old legal loophole that has been exploited by some in the financial advisory industry for decades, allowing them to rake in billions of dollars a year in commissions by recommending investments that drain away their clients' hard-earned savings through these commissions and low investment returns.
Of course, not everyone who gives retirement investment advice is taking advantage of their clients, and many do act in their clients' best interests. But because the law does not require financial advisors to do so, far too many do not act fairly.
Thus it is that selfish actions by some advisors are damaging the reputations of all of the 'good guys' in the financial advisory industry at the very time when we're seeing a new generation of innovative firms already embracing the spirit of this proposed rule and helping middle class savers get the kind of advice that just a few years ago was out of reach.
For example, advisers like Rebalance IRA, Wealthfront, Personal Capital and Financial Engine are using cutting-edge technology to provide workers and retirees with low-cost, high quality advice that puts the best interests of savers first. And these innovators are joining the hundreds of thousands of advisers at traditional firms already working face-to-face with modest savers and small businesses to provide them with advice under a 'best interest standard' while charging reasonable fees.
This is the kind of forward-looking leadership that all business leaders should demand of financial advisors serving their employees and retirees. Putting financial clients' best interest first is the right thing to do, and the proposed Best Interest Rule sets this higher standard while accommodating the financial services industry's demand to preserve its commission-based business model.
Supporting this Department of Labor initiative should be a no-brainer, but unfortunately some in the financial services industry are using the same tired tactics that have caused so many Americans to lose faith in business leadership over the years. Many bankers, broker-dealers, and other members of the industry have issued dire warnings that this modest and sensible rule will actually hurt low and middle income savers. This is the same tactic they've been using since the inception of financial regulation in the United States, including reforms enacted in the 1930s to prevent another Great Depression.
These attacks are false and misleading, and the public deserves an honest debate on such an important issue. Thankfully, well-respected and effective groups like Better Markets, AARP and the AFL-CIO are standing up and fighting back with the facts.
After their decades of hard work, Americans deserve to retire with dignity and security. The proposed Department of Labor Best Interest Rule will help them do just that if we can just get it over the finish line and beat back selfish opposition coming from within parts of the financial services industry.
This isn't just an opportunity to give all Americans the unbiased, fairly priced advice they expect and deserve. It's also an opportunity to shatter the stereotype of corner office executives focused solely on their companies' bottom lines, which is why all business leaders should be doing what's right and supporting this important initiative on behalf of our employees and retirees.
Leo Hindery, Jr. is Co-chair of the Task Force on Jobs Creation, founder of Jobs First 2012, and a member of the Council on Foreign Relations. He is the former CEO of AT&T Broadband and its predecessors, Tele-Communications, Inc. (TCI) and Liberty Media.