Sabotage in your IRA: Sens. Warren and Booker

It's hard — really hard — to save for retirement. And the stats bear this out: Almost one-third of Americans on the edge of retirement have zero savings. Another third have saved less than one year's income.

That's why it's important to protect every dollar that someone puts away for their retirement. Many Americans rely on investment advisers for guidance on how to save towards retirement, and most advisers have savers' best interests at heart. But not all advisers put their customers first — and that's created a hole that's draining $17 billion in retirement savings every year, money that's going to some investment advisers who are more interested in collecting fees for themselves than helping families build real security.

Thankfully, the hole may soon be plugged. The president and the Department of Labor are meeting with stakeholders and the public to finalize new rules that would require the people who advise customers about IRAs and other retirement savings options to keep the best interests of the customer as their first priority. These proposed rules are still being perfected, but they are a strong step in the right direction.

Today, if employers offer retirement options at all, it's most likely through 401(k)s and IRAs, which put families in charge of ensuring their own returns through a series of often-complex accounts. Instead of a handful of experts managing a company's pension, this shift means that families must rely on retirement advice from financial advisers and brokers.

Most retirement advisers recommend investments that work best for the customer. They work together with their clients to help them reach their retirement savings goals. But some don't. These advisers and brokers recommend investments that boost their own profits through fees and bonuses, while the value of the customer's savings are eroded over time. Some recommend investments in return for being rewarded with free vacations, cars, jewelry, or on other perks that the adviser can earn from selling a more expensive product to the customer — one that is plainly not in that customer's best interests.

Because of outdated laws and loopholes big enough to drive a truck through, it is now perfectly legal for brokers and advisers to take payments and boost their own incomes by pushing lousy products. Most customers aren't on the lookout for unscrupulous retirement advisers.

The problem is significant. Several studies, including some from Harvard and MIT, have found that certain advisers consistently steer customers toward the highest fee products — despite the fact that high fee products don't perform any better, and often perform much worse, than low fee funds. Russel Kinnel, the Director of Fund Research at Morningstar, a leading investment research company, said this about high fees: "If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds."

Even if the percentages seem small, over time costs compound to become big numbers. People working hard to put away money lose an estimated $17 billion a year to excess fees. Even a 0.75% increase in fees could cost a retiree over $100,000 in savings over a career. That's a lot of money to lose.

This loophole is also unfair to the thousands of honest advisers and brokers who put their clients first and work hard every day to help Americans build a secure retirement. Right now they have to compete against unethical advisers who rake in money just for themselves. That's not a level playing field — it's a broken system. It's time to fix it.

While several industry leaders have stepped out in support of a rule, many of those who benefit from maintaining the status quo are arguing that the industry can police itself, that the Securities and Exchange Commission should regulate retirement advisers instead of the Department of Labor, and that requiring advisers to disclose conflicts of interest should suffice. But none of these arguments pass the smell test: the retirement industry and the SEC could have fixed this problem years ago, but failed to do so — resulting in lost billions for today's retirees. The Department of Labor, which has clear authority to act, has stepped up. It's about time.

Middle-class families face many challenges trying to save for a secure retirement, but high fees and hidden payments shouldn't be among them. Hard-working Americans who manage to scrape together some savings for their retirement should be able to trust that their advisers are working for them — not against them.

Elizabeth Warren is senator from Massachusetts. Cory Booker is a senator from New Jersey. Both are Democrats

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