401(k) plans: a never-ending story

I have worried about this issue before, but it is never bad to keep up with the reminders:

 If you have a 401(k) plan through your employer or an IRA or other investment account through your bank, the financial institution may try to set you up with a "financial adviser" to help steer your investment decision-making. This person will claim to be giving you advice in your own interest but in fact is under no legal or professional obligation to advance your interests. His real job is to steer you into high fee products that are lucrative for his employer. This is not criminal fraud that the FBI will investigate. It's not a civil offense that the SEC will investigate. It's not illegal. The Labor Department tried to change the rule and impose a fiduciary standard at least for employer-sponsored plans but congress stepped in to tell them no. You're never going to have a world without some sociopaths breaking the rules (read Josh Levin's amazing reporting for a spectacular example) but what we have is a world where congress steps in to make sure that deliberately peddling bad advice to middle-class savers isn't against the rules.

The part of this that I find the most painful is that these problems are occurring in parallel with a quest to reduce the level of social security.  People seem to get a reputation for being "tough-talking realists" for saying that entitlement spending (especially retirement funding) is unsustainable.  But there is no essential need for companies to try and hide the costs of these funds and the realistic impact that has on the rate of return.  In fact, doing so would be a positive social good in that people could save at more realistic levels.

On the other hand, 401(k) have a captive audience (you can't change your 401(k) provider without changing your job).  So they have a vested interest in extracting as much value as possible from the investors as the person who decided to contract with them is the employer.  So long as the people invested in the plan don't realize (while they are employees) that the plan gave bad advice, there is little impact to the employer.  So a classic principal agent problem. 

But there is no fiscal reason to do this to retirees.  After all, high profits for private firms should not be a political goal that trumps everything else.  And reputation won't matter as firms can always re-incorporate or change their name. 

So this suggests a different agenda -- not to improve retirement conditions for older adults but to support the finance industry.  Industry support is fine, but it really should be transparent.