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THIS is how Obama can fix 401(k)s

All too often, financial advisors give advice based on what's best for their bottom lines, not their customers' retirement accounts. Obviously, this is a conflict of interest. Now, it's also of interest to the Department of Labor, which is concerned that "loopholes in retirement advice rules" allow advisors to put their own profits ahead of their clients' welfare by using "backdoor payments and hidden fees." The net result of this conflicted advice is often retirement investments with high costs and low returns.

President Obama has urged the Department of Labor to back a rule that would require financial advisors to "put the best interests of their clients above their own financial interests." The new rule is slated to be finalized early in 2016. Seems prudent, even a no-brainer. But special-interest groups are doing everything they can to derail it.


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They argue that the rule would add unnecessary cost and burdens to small-business owners providing 401(k)s and make it difficult for their employees to get the retirement advice they need. Why? If advisors are not able to sell products with high fees and commissions, small businesses would become less profitable customers and advisors would drop them.

Conflicted advice, they argue, is better than no advice at all. The current lower standard allows advisors to recommend investments that are "suitable" even if they are more expensive than alternatives. This places the advisor's interests above that of the client's. And this is what the rule seeks to change.

True, the fiduciary standard and conflict-free advice would likely force financial advisors to recommend less expensive investments, which may not generate enough revenue to make serving small companies profitable. So, as the opponents suggest, will retirement advice for small companies and their employees disappear with the stricter fiduciary standard?

Maybe 10 years ago. Not in 2016.

The democratization of financial advice in America has already begun. A new breed of financial advisors are leveraging technology to provide low-cost, personalized, conflict-free retirement planning advice to every employee, regardless of their balance. Potentially bad advice is no longer the only alternative for small companies and small balances.

The financial technology industry has already deployed efficient, cloud-based technology and state-of-the-art plan design. And both have made high-quality 401(k)s significantly more accessible to small businesses.

How? Automating manual processes reduces or eliminates work, while reducing cost. This improvement is in addition to low-cost, conflict-free advice, and helps small businesses provide a 401(k) without the cost of added work and staff. For example, a big headache for many small companies involves manually processing 401(k) payroll deductions, tracking eligibility requirements, and the timely distribution of required notifications and communications.


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These chores become automatic when integrated with any cloud-based payroll system. Another burden for employers is participant education, advice, and communications. Today's 401(k)s combine technology and behavioral science to provide virtual participant education and advice, delivered via web apps, texting, and mobile devices, anywhere, anytime.

Technology and modern plan design have paved the way for small companies and their employees to be reached and served far more cost-efficiently. The need for conflicted (and more profitable) advice is no longer justified. Today, a start-up, or a café, or any company with just a handful of employees can easily have a 401(k) that handles investment, compliance, and administrative fiduciary responsibilities, for less than $100 a month total employer cost for a company with up to 10 employees.


And this "small" company market is not small. According to the U.S. Census Bureau's NAIC system, there are 5.6 million "small" businesses (of between 5 and 500 employees), with 49 million employees. That's at least 49 million American employees who will remain at risk until this rule is finalized and the standard for financial advice shifts towards the consumer.

We believe advisors should help employees make the most of what they have, not help themselves to most of what employees have. There should be no circumstances that allow financial advisors to put their personal financial interests ahead of what is best for their clients.

We applaud the Department of Labor's proposed fiduciary rule. There are many who have been living by it, and who have created technology to make high standards commercially viable. But we are volunteers. This should not be voluntary. Not with the retirement savings of millions of Americans at stake.

In 2016, let's make this rule happen.

Commentary by Shin Inoue, a founder and CEO of ForUsAll, a new 401(k) provider for small businesses that is committed to modernizing and simplifying the way people plan for retirement. Prior to ForUsAll, Shin was director of new business at Financial Engines, a pioneer in democratizing access to high quality, personalized investment advice. Follow him on Twitter @shinichiroinoue.