The erosion of trust and the retirement crisis

Concerns over a retirement crisis are once again being supported by research — this time, from asset management firm, BlackRock. Their study of registered voters found that “90 percent of respondents think there is currently a retirement savings crisis in America.”

The top retirement concerns reported by respondents was their concern of not having enough resources to cover long-term expenses (78 percent), not being able to “maintain their standard of living throughout retirement” (75 percent), and concern over lack of savings (73 percent).

Maybe the most revealing finding is just 13 percent of registered voters “think elected officials in Washington, D.C. are focused on helping people like them plan and save for a secure retirement.” For Independent voters, it was only three percent.

As APSR has highlighted before, one factor that may be contributing to people feeling insecure about their retirement savings is the effort by some elected officials and policy makers to undermine fiduciaries by either inserting their own politically based judgement on what a pension fund should invest in or, just as troubling, by accusing those fiduciaries of making investment decisions that aren’t in the best interest of the client.

As a result, several states have enacted state laws that have banned many investment firms and banks over accusations that they are against oil and gas, or overly focused on environmental, social, or governance (ESG) factors.

These accusations hurt the trust between the investor and retiree, while laws and policies limiting the options for financial institutions that fiduciaries can work with hurt retirement returns and increase costs for taxpayers. But there is pushback.

Recently a politically focused conservative group alleged to steer state pension investments to its donors has been accused of potentially violating federal securities rules, a watchdog group wrote in a letter to the Securities and Exchange Commission (SEC) first reported by Rolling Stone.

In that letter, the Campaign for Accountability (CFA) asked for an investigation of the State Financial Officers Foundation (SFOF), raising questions about whether some of that group’s financial backers are investment advisers who aren’t allowed to make political contributions but have done so anyway in order to obtain access to SFOF’s members.

SFOF counts many Republican state auditors, comptrollers, and treasurers among its members. The group has been actively supporting state efforts to blacklist financial advisers accused of using ESG (environmental, social, and governance) factors in investment decisions. As an example, Texas has blacklisted firms it has accused of avoiding investments in oil and gas. It is unknown where this complaint will go or what might result from it, but if true, the allegations it raises are certainly troubling.

These allegations are troubling, in part because as RealClear Markets recently reported, “states are distorting financial markets and undermining the principles of fiduciary responsibility that govern prudent investment practices. Whether through divestment or requirements for detailed disclosures, such regulations often complicate the financial decision-making process and directly hit taxpayers’ wallets.”

And that highlights the conflict. Investment professionals and fiduciaries have an obligation, a responsibility to act in the best interest of the client. This obligation is undermined when politics are involved. The result is a risk to the stability of retirement funds, a cost to taxpayers and retirees, and the loss of trust between those who are invested in retirement savings and those charged with their investments.

If Americans who rely upon pensions can’t have faith that all parties involved in their retirement accounts are acting in their best interest, it is little wonder that so few believe elected officials are watching out for their efforts to save for retirement.