Date: 2013-10-29
Speaker: GEORGE MILLER (democrat)
Chamber: H
State: California

I thank the ranking member for all of her work on this legislation and for her yielding me the time. Mr. Speaker. I rise in opposition to H.R. 2374. This bill is very bad news for working families. It protects the loophole in the law that allows conflicted brokers and advisers to rip off ordinary Americans who are trying to save for their retirements. The 2008 financial crisis wiped out trillions of dollars of Americans retirement accounts. Working families now need help in rebuilding those nest eggs. and they need better protection for their savings. The SEC and the Labor Department have moved to provide these protections. proposing to close the harmful loophole. but this bill would scuttle those efforts. Here is what is at stake. Millions of Americans are putting money aside every day in their 401(k)s and in their IRAs to save for retirement. They have to make these investment choices. and Wall Street is more than happy to advise. but some of those advisers and brokers have conflicts of interest. often undisclosed conflicts of interest. The brokers know about their conflicts of interest. and the brokerage houses know about their conflicts of interest. but the person who is handing over his hardearned retirement funds doesnt know about the conflicts of interest. The workers think they can trust this investment advice. But what they dont know is that their advisers may get paid more for. in fact. in actual cases. steering them into highcost funds with the worst performing of the family of funds. It is very good for the family of funds. but it is very bad for that individual worker who is now handing over his retirement nest egg. That product might have higher fees than other products. It might underperform compared to other products. In other words. the product is not in the workers best interest. but it certainly is in the brokers best interest. The SEC and the Labor Department are trying to close this loophole that allows this ripoff to continue to happen. and it is. indeed. a ripoff of ordinary Americans. I know my friend from New Jersey doesnt like the term "ripoff." but that is what is happening to these hardworking American families. Multiple studiesnot conjecturehave found that these conflicts of interest cost these retirees. these workers. very real money. In 2009. the GAO found that. when a pension consultant has conflicts of interest. a defined benefit retirement plan underperforms by 130 basis points. If a conflicted broker in the defined contribution world recommends funds at a similar rate of underperformance. a 40yearold worker who rolls over his $20.000 401(k) balance into an IRA will see his retirement savings cut by a third over 30 years. If he normally earns 6 percent returns. he would now only be making a 4.7 percent return. The bottom line is he is $35.000 poorer by the time he reaches 70. Thank you for that conflicted advice. This year. researchers found that the funds recommended by conflicted brokers in 401(k) plans underperformed by an average of 3.6 percent. That translates into workers losing $1 billion every month from their retirement funds because of these conflicts of interest. As a result. consumers are getting bad advice and are putting their retirement savings at stake. Where do those figures come from? They come from the founders of the Vanguard funds. who worked out the differences between these funds. conflicted funds. and other funds. That is why the DoddFrank law directs the SEC to transition brokers to a fiduciary standard. and. separately. the Department of Labor is trying to align the protections as well. Brokers need to either act solely in the best interests of investors or otherwise disclose who they work for and how they are paid. but some on Wall Street have cried out. claiming that they will not be able to offer investment advice. especially to working people. if they cannot offer conflicted advice. They cant tell you how to invest your money unless they can offer you conflicted advice wherein they are getting paid more to offer you a substandard product. With the knowledge of that and the higher fees. they somehow cant make money. Lets remember that 75 percent of the brokers cant beat the S&P 500 that is on automatic pilot.